October 31, 2025 • 54 mins
This week on Market Maker, we unpack three big themes moving markets. Nvidia briefly hit a $5 trillion valuation before a Trump–Xi meeting wiped billions off the stock. We explain what happened and what it reveals about AI hype and geopolitics.
We then break down big tech earnings: Alphabet soared while Meta slumped, despite similar numbers. Is “BATMMAAN” the new “Magnificent 7”? And finally, the Fed cut rates—but Powell’s fog analogy hints at rising uncertainty ahead.
Whether you’re a student, prepping for interviews, or just want clear market insights, we’ve got you covered.
(00:00) Themes in Focus This Week
(03:46) Nvidia hits $5T: AI chips, hype & order book
(09:17) Trump–Xi meeting fallout: Nvidia crashes
(22:00) Alphabet soars, Meta slumps — why?
(30:11) Amazon & Apple: AI, retail, and holiday signals
(37:40) Meta’s spending problem + the new AI chapter
(49:37) Fed cuts rates: Powell’s “fog” warning
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Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello, and welcome back to the Market Maker podcast.
We've got 3 themes, as always, that we're going to talk about
#1 is NVIDIA just became the first company to briefly top $5
trillion because it went over that.
Mark came back a little bit. What happened in one meeting
with Trump and Jie that wiped billions in minutes?
(00:22):
We'll look to explain then. A good segue is the big tech
earnings. Big tech all beat earnings this
week, but one sword one crashed 11% on almost the same numbers.
So that's the difference. You know, a single shift in what
markets now care about is something I know you want to
(00:42):
talk about a little bit, Piers. And in fact, I did read 1
journalist talking about the theMag 7 moniker.
Looks more like it needs updating.
Do you know what it's going to be updated?
To I don't know. Batman.
Oh. Batman So Batman 2MO2A S.
(01:06):
OK, SO2M's 2A's. Any idea who the B is?
Well, I say I'm getting. I'm getting stumped by the B
straight away, which is why I'm not really getting much further
through the acronym B would be. I don't know your misery.
(01:26):
So the B is actually the 6th largest company in the S&P 500
by index weighting. And that of course has everyone
listening about everyone. As everyone listening knows,
it's Broadcom. Oh, Broadcom, of course.
Getting hoovered up in that the AI storm of course bigger than
(01:46):
Tesla, bigger than Meta is Broadcom.
And so if you were to put the The Batman together, it's worth
an high watering $24 trillion combined and that's about 40% of
the S&P just. For a big context, Batman.
So you've got Apple, Tesla, Meta.
(02:09):
Microsoft, Apple. Amazon.
Apple, Amazon and the Netflix, Is that the end?
No NVIDIA, not Netflix. Come on.
Of course. What?
What era are you living in? Netflix?
Come on, this is like a week five years ago.
Can we just start this episode again?
It's a bad start. So you're going to quiz me and
(02:29):
I'll go. So I've got my I've got my chat
chief ET ready for when you quizme.
Bang in those, those those questions as you're not
speaking. And then the third theme we've
got is the Fed cut rates again earlier this week.
But Powell somewhat surprised the markets by warning the next
cut might not come at all. And so what's speaking the Fed?
(02:52):
Please. Yeah, happy Halloween, folks.
And then a couple of shout outs quickly before we begin very
quickly, Adele, Rea and Charles at Warwick University, they've
been a huge help to supporting alot of our campus presence at
Warwick in the past week. Simmi, who actually came up to
me in one of these events and said she'd been listening to the
(03:12):
show Piers since she was at college, so doing her A levels.
And they used to actually have it in their form shooters and
listen to it together. Oh, right.
And then they've all gone on nowto secure jobs.
She's going to Deutsche Bank. So that's pretty cool.
That's very cool. And then Slavic, who stopped me
in a Leon Cafe in London yesterday, he had a suitcase
(03:36):
with him, his full suit on, and he said he was just about to get
an interview at Deutsche Bank across the road.
So I hope you smashed it. Sure you did.
But look, let's dive in. And let's start with, I guess
with NVIDIA as a talking point, perhaps I can talk a little bit
about the rice and then you can talk about the little bit of
volatility that came on the backof this highly anticipated
(03:58):
meeting between the two heads ofstate.
So NVIDIA, first company ever tocross 5 trillion.
I was just thinking those milestones that were put out for
Elon at 10 trillion. Tesla, you're like, wow, we're
already, we're already talking fives now.
And I know Tesla's are way off the NVIDIA pace at the moment,
but you know, they all, you know, one's moving the other.
(04:21):
They are collective, right? With the S&P, the concentration
that's 40% for Batman. I mean, if they're all moving,
then everything's going to move to some respect.
So that 10 trillion doesn't sound as radical as it did just
six months ago, never mind five years.
So it will be be interesting having a look at this 5 trillion
(04:45):
some context. So that company now accounts for
nearly 110th of the entire S&P 500 as a metaphor because people
love to say this not quite. I know the technical you'll get
shouted out for the technical comparisons, but Nvidia's value
exceeds the GDP of nations like India, Japan and Germany.
(05:05):
Just to give it to give it a bitof.
It's the third, it's the third biggest in the world.
There's only the US and China that are bigger than 5 trillion.
That's just insane, isn't it? But yeah, how did this happen?
So just a quick brief history oftime.
So product execution and demand for this Blackwell.
You're going to read and hear about Blackwell a lot.
(05:27):
So NVIDIA confirmed it had shipped 6,000,000 Blackwell
ships so far and has orders for another 14,000,000 over the next
five quarters. I thought I was going to say
five years, 14,000,000 over the next five quarters.
So that represents roughly half a trillion dollars in sales, I
(05:51):
mean. Yeah, in, in 15 months.
Right, and that's your order book like so this isn't like
forecast. That's just expectations rough
finger in the air. This is an order book.
So this is insane. And that's what bump choose to
stock 5% on on Tuesday. The other big thing NVIDIA had
was you might have seen very snazzy conferencing in DC in the
(06:14):
States, Jensen Huang doing his best work as he always does on
the on the stage, but they continue to secure business
through partnerships. It's kind of like we've talked
about a little bit before, bit of a circle jerk.
But that aside, there's this idea that that how, how do you
really secure your order book? Well, you do it through
(06:36):
strategic alignment with partnerships and this keynote
speech that he gave Nvidia's first ever tech conference that
they held. Here's just a flavour of some of
the some of the clients that we're talking about.
You might have heard of this number one client it's the US
government. So they're pretty good pretty
good side bills, pretty good perk, pretty reliable customer.
(07:01):
So the US Department of Energy, they're working together to
build 7 new supercomputers, including one system using
10,000 Blackwell GPUs. So that's one Uber collaboration
to build a fleet of self drivingcars.
Eli Lilly agreement to sell 1000GPUs for drug, drug discovery
(07:21):
workload. Nokia, yes, still alive
partnership to help develop nextgeneration 6G cellular cellular
technology. Planteer.
Oracle new tie UPS, enterprise cloud deployments, obviously
robotics ecosystems that was more about AI power initiatives
for Amazon, Foxconn, Caterpillar, I mean these are
(07:43):
some of the biggest companies inthe planet.
Across sectors, right, right, which is that could diversity
there in terms of their order book across sectors?
Yeah. So this 5% move which is which
is huge for a company this magnitude that we saw at the
beginning of the week. So it was the update on that,
(08:04):
that order book, the demand on this black World chip side, all
of these strategic partnerships that they're announcing.
And then on Wednesday, Trump said he planned to discuss
Nvidia's Blackwell AI chips withPresident Xi Jinping calling,
calling them super duper. So technical as ever is the US
(08:24):
president. But his his remarks were were
coming ahead of a meeting in South Korea.
The statement. So for the context here though,
the reason why the market got very excited was about access or
potential regaining access to China, world's largest market
for AI hardware. So since two 2022, US export
(08:47):
restrictions have effectively banned NVIDIA selling its most
advanced chips to Chinese buyers.
And that market share went from pretty much completely
everything 95% to 0. Trump had previously talked
about a watered down diluted version of the technology that
he could sell to the Chinese. But who, who, who's going to
(09:07):
want to buy, buy that. So investors are very much this
idea of, OK, the company is doing really well.
The the China part is like the cherry on the cake that could
really unleash the next move. And so that hasn't hadn't
happened, but just the signal that they were going to be
(09:28):
talking and this was potentiallyon the table and Trump sounding
positive, that got us there. So that's LED us to the meeting.
So tell us what happened at thatmeeting.
Well, yeah, I mean that that back story is important.
I mean you say, well, I want to challenge two things you've
said. So you said that China market
shares gone to zero. I would, without any sort of
(09:54):
clear hard proof, I would speculate that's not true.
And that whilst the export restriction is in place, there's
plenty of Blackwell chips getting through to China via
other markets, Singapore, Vietnam, right, there's cut,
there's shell companies getting set up in these other countries
(10:14):
buying Blackwell chips And then shipping them through the back
door into mainland China. So there's definitely a bit of a
sort of circuitous route around that, that kind of tariff
barrier. This goes to show the different
social circles we hang out in. But obviously the volumes are
heavily reduced than what they would be if the tariff barrier
(10:36):
wasn't there, clearly, right. So secondly, yeah, so the idea
has been that and Trump has beentalking to Jensen over at NVIDIA
about, right. Can you come up with a chip
that's less, less powerful? And it's like we, I think it's
80% of the kind of power or whatever term you want to use to
describe the output of these things, right?
So an 80% version. And maybe that's a a kind of a
(11:01):
chip that the US government's prepared to allow to get
exported. Of course, the US government's
kind of stance here is they wantto kind of kneecap the ability
for China to keep up in the AI race, right?
And obviously the NVIDIA chip isthe king of all chips in this
race. And so if they're not, if they
can't get their hands on those, it'll slow them down.
(11:21):
That's the whole point, right? And so, right, maybe Trump will
allow an 80% Blackwell chip. I would say who you said, who
would want to buy that? Well, to be honest, an 80%
Blackwell chip is probably better than any other chip
available to the Chinese. So actually, even 80% still best
in class in China, I would say. So there is a market for it.
(11:42):
So this meeting, yeah, as you said, teed up.
Let's see. Trump came out of it.
Here's what he said. It was an amazing meeting.
On a scale of zero to 10, with 10 being the best, the meeting
was a 12. So love it.
(12:02):
Good, good old Donald unpeel thelayer off the top of that
comment. What got agreed in this meeting?
Virtually nothing. Did they talk about NVIDIA and
Blackwell? Not once wasn't even discussed,
which is why the NVIDIA share price then took a bit of a, you
(12:24):
know, about turn and a nosedive because obviously the
anticipation and the hopes were right.
That would be a key item on the agenda.
Some of it would get agreed. Great.
The tariff barrier would be reduced, removed, whatever.
They didn't even talk about NVIDIA.
So what did they talk about? Well, not much, to be honest.
And well, they talked about a few things.
(12:45):
What got agreed was not much. So.
So what got agreed? Well, again, in Trump style,
Trump kind of piled out and going, yeah, you know, this is
amazing. They've agreed to buy massive
amounts of soybeans because thishas been one of the China's sort
of levers in this kind of war. China buy a lot of soybeans,
soybeans off US farmers. And they've been restricting
(13:08):
their purchases as part of this war, right?
Well, China have now agreed to step up purchases.
And so they're going to be buying 12 million tonnes this
year. It's going to go up to
25,000,000 tonnes next year and over the next three years.
And Trump's like, yeah, massive soybean deal got done.
That's just returning the sales volume to the 2024 volumes.
They're not, this isn't like a mega amazing deal.
(13:30):
It's like just, OK, return back to last year's levels.
The other thing they talked about was China postponed their
rare Earth's controls. So another key lever, the
biggest lever of all that China have in this battle is their
dominance over rare earth supplyto the planet.
And obviously that's a key component in everything
(13:51):
electronic. So they've agreed to kind of,
you know, postpone their their threat to curb exports out of
China. So that's obviously something
key. But we were expecting that that
kind of got sounded out and meted out about a month ago.
So it's not really a surprise. Then other little bits.
They suspended measures targeting each other's
(14:11):
shipbuilding industries. The US is holding off on its
extension of tech related exportcontrols and basically halving
that fentanyl tariff, which, youknow, what kind of impact is
that going to have on China? Minimal.
It might lead to point 1.2% bumpup in their GDP.
(14:31):
Look, this is a obviously a top level meeting between the two
big guns and it's optics mostly what actually got decided there
and then in that meeting, very little.
But look, it was only a lot, 1 hour long.
I mean, what can get done in such a short space of time,
right? But yeah, Trump loves the same
bite and so piled out super positive, but in reality, not
(14:55):
too much progress got made. What?
Was interesting is just before we jumped on to record this, I
did go back and watch some of the the keynote from from
Nvidia's conference and wow was that a homage to make America
great again I mean. Really.
The political alignment of this is almost outrageous.
(15:17):
It starts with like the the the original foundations of the
American country and it starts with the word America on the
screen. I mean, Jensen is going full
board into into the Trump world at the moment for obvious
reasons, I guess. But yeah, anyone have a look at
(15:38):
that on YouTube? It's it's quite amazing how that
starts. It's like an advert for tourists
of of America. It's how far he's gone.
But look, there's lots to talk about in this episode.
So maybe as ever, our fabulous researcher Saab does a really
good section on strategic themes, which sort of summarizes
a lot of the topics that we do. So maybe I'll just whip through
(15:59):
that and we'll move into some ofthe big tech earnings.
So summarize then this NVIDIA situation.
So AI craze and valuation lift Nvidia's brief jump to $5
trillion. Just talking about this idea of
the AI boom can pour single hardware leader into an economy
sized valuation. So AI demand still both real,
(16:22):
still compounding. Everyone's talking about the
bubbles. I'm sure there'll be many on the
fence who will say this is further evidence of the bubble
that we're at. But hard to go against that
client roster and order book information that came out this
week, Yeah. There's that like one point just
just to interrupt that order works awesome.
(16:44):
Amazing. That's not guaranteed money in
the bank though in the future, right?
That's an order, you know, can these customers afford to
actually fulfill those orders? Is is a is the risk but but
yeah, so sorry, can't have. Two point, second point, policy
(17:06):
headlines. So just a responsiveness, you
know, if NVIDIA moves 5%, the whole market moves to some
respect over that very brief period of time.
So yeah, just the whiff of smelling of selling, sorry, some
of these AI chips into China. So definitely continue to
monitor those trade dialogues very closely.
Fundamentals as the stabilizer. I think that's a nice way of
(17:26):
summarizing it, which is you cankind of get these ebb and flow
of the trade bill. That volatility level is
obviously heightened given the the negotiation techniques of
Trump and the way he tends to approach these things.
But underlying that and that aside, as we've discussed, the
fundamentals are looking pretty solid at this moment in time on
(17:47):
that real demand, the political alignment just discussed, that
is Huang's visible cooperation with the US goals.
A couple of these things were from producing in Arizona to
praising the economic agenda to doing large US deals.
You know every you know, he's putting the company at this
center of making America great again with manufacturing and
(18:10):
he's his company's at the epicenter of that and then
approving US China tone. I mean, you said not a lot has
come of it, but as you and I know, just the fact that they're
talking is actually a meaningfulthing.
And given the fact that what it was only a week ago that had a
bit of a Barney and a fallout. So it is a lit coming a little
(18:34):
bit farcical. And I guess one thing is what do
you think about the idea that the magnitude of market reaction
to some of these potential Trumpmachine engagements will start
to get diluted over time? Because the nature of it's
becoming quite a behavioural trend now that we get this
fallout talk deal, fallout talk deal, Yeah.
(18:57):
And it's becoming quite regular pattern.
Plus they are, you know, the trend is moving towards a deal,
right? And so whilst the speed of that
movement might be slow, you know, if you go back to April,
which is like 6 months ago, you know, there it was like, oh wow,
maybe it's 150% tariffs. No deal was like a genuine
(19:22):
thing. That's, that's, that's way
behind us out of sight in the rearview Mirror Now that, that
mega risk. So now, so the risks to the
outcome, you know, they're the best possible and the worst
possible risks have narrowed andnarrowed and narrowed as they've
gone along. And you know, so that that's
another reason why the market reactions would naturally be
(19:43):
smaller as well. OK, well let's talk about the
other big tech stocks and there's been quite a few of the
Batman Club, so which ones you want to start with first?
Well, I want, I've got, I want to talk about all of them
together, but maybe we should dothat at the end.
(20:04):
Let's tackle the kind of individuals first.
I want to talk. Let's take Google.
Or I should say Alphabet, if youwant to trade Google, you need
to buy Alphabet shares. Alphabet being the parent
company, but 99.5% of the value of Alphabet is Google.
But yeah, so let's talk Google. I mean, so you know, phenomenal
(20:27):
earnings. And look, you've got to
understand that coming into thisearning season, and we, I think
I mentioned this maybe last weekor the week before, these tech
stocks have been on an absolute tear, right?
The S&P index of overall is up 40% since the April low, since
the kind of tariff tantrum Aprillow is up 40%.
(20:47):
Now, obviously most of that is tech.
It's the big tech. As you've just said, Batman's
40% of the index, right? Obviously it's those big guns
that are leading that 40% charge.
Point being, these share prices are like super high, like
relatively. So, you know, to get any more
upside, having seen the huge climb behind, to get any more
(21:07):
upside, you need sensational stuff.
You know, these figures need to be off the scale good.
You know, just good is not good enough, right?
Because your share price is pricing in the absolute awesome
scenario. So what happened to Alphabet?
Well, actually their share prices went up and actually
overnight in overnight trade because these tech earnings get
(21:28):
released after Wall Street close.
So Alphabet and Meta and I thinkMicrosoft were on on Thurs,
sorry Wednesday night, so the 30th, so sorry, the 29th of
October Wednesday after the close.
Right now after the close, you still get this sort of like
(21:48):
closed market movie. So we we talk about after the
closed share price movement. So in after market moves, the
Alphabet share price was up I think 8% at one point at its
best or 678. And by the but, but by the close
of Thursday's session, it kind of come off a bit it was up, but
like more like 3%. OK.
So the Alphabet that's been one of the best performers by the
(22:10):
way, even out of the big tech interms of share price upside in
the last six months that that got a bit more on the upside
indicating obviously these numbers were phenomenal.
One thing that stood out to me, $100 billion in quarterly
revenue. Yes, that's that's quarterly
revenue. In three months, they sold
(22:32):
$102.3 billion worth of servicesfor the first time in their
history. That is just extraordinary.
And that was a 16% year on year growth.
That's the amazing thing about big tech.
They're so monstrous in size. And yeah, their revenue growth,
it's like, it's like a start up,you know, it's quite
(22:55):
extraordinary, right? So here's my pop quiz for you.
So they they got north of 100 billion in one quarter.
Give me name any other companiesin history that have notched
more than $100 billion worth of sales in 1/4.
It's going to be Amazon. Correct.
(23:19):
Yeah, there's one other. Rather of the big tech
meaningful. Not a tech stock.
So you think more think more Amazon in a way.
Not the techie part of Amazon. Walmart.
Yep, bang on. These are the monster retailers,
(23:41):
right? But they operate on super wafer
thin margins. OK.
So actually Amazon, I think theyhad a, their best was $170
billion in one quarter. Walmart clocked 180 billion
actually, but their margins are super SIM.
So when you take the top line, which is a hunt for for alphabet
102.3 billion. The most amazing thing is also
(24:04):
then their profit margin. So they actually generated $35
billion of profit in three months, which is absolutely
astronomical. The the numbers are just mind
blowing to be honest. But you know, why did the share
price rise? Well, those numbers beat
expectations. Their cloud business notched
(24:27):
over 15 billion in in one quarter compared to 11 billion
just the same quarter the previous month.
So obviously, you know, even more accelerated growth in that
cloud business side, which speaks to the obviously the the
AI boom and the, you know, data centre build out and the kind of
insatiable appetite for compute power that these AI models
(24:50):
require. And so obviously that's another
as well as Nvidia's order book, right?
It's the growth of these cloud businesses, Google, AWS, Amazon,
you know, as you're over at Microsoft, they're the big
three, you know, if they're motoring and growing super fast,
that's another sign that the AI kind of revolution is still
solid and growing. So yeah, look, Google smashed
(25:14):
it. Amazing stuff.
Just before you, just before youmove on to Meta, I think it is
you're going to talk about. I was just going to have a quick
look at the year to date performance and NVIDIA is
obviously a standout. They're up like 50%.
Next is and only a fractional A whisker behind is Google is
(25:37):
Alphabet. Yeah, Apple's up like 8.
Microsoft's up like 24. Google is up 50.
And do you remember everyone wassaying what again?
This was like less than 12 months ago.
It was like AI. They're not delivering.
They're behind the curve. You know, Gemini's rubbish.
They're losing the cloud market shares.
(25:58):
Not as rapid as some of the others.
Can't penetrate AWS. What's changed?
Well, I mean, I think what's changed is this, this as this
kind of AI revolution advances, people have thought a little bit
more, you know, to start with itwas just like buy anything
that's anything to do with AI, right?
(26:21):
It doesn't matter if it as long as it's got those two letters
attached to it by it. And NVIDIA were obviously the
starting point of that. I think as time's gone on,
you've got to understand how thephases of this revolution.
So, so firstly, it's like the chip builders, like the
obviously Nvidias, but then it'slike the data center build outs.
(26:41):
This is like the infrastructure layer, if you like.
And then obviously you've got tohave the apps that will enable
businesses to run more efficiently.
ChatGPT, right. So you've then got to have that
kind of product, you've got to productize it.
And then finally, it's actually the businesses themselves out
(27:03):
there across the planet, which will see efficiency gains,
margin improvements and therefore, you know, profits and
and and kind of share prices go up.
That's the kind of third and final part.
OK. Now as we're looking at this,
Google basically will benefit from all three phases.
There's very few companies, in fact, I don't think there are
(27:24):
any others that have got all three because they're building
their own chips. Actually, they've got some
really interesting stuff coming down the pipe to actually rival
Nvidias. They've got the cloud
infrastructure, so that's in place and they're benefiting
there. They've got Gemini, which is the
ChatGPT kind of rival. That's not so far at least
(27:45):
cannibalizing its big revenue stream, which is Google Search
ads revenue. OK, at the moment.
That's that's what people thought.
They thought that Gemini, which is when you Google stuff now you
just get that kind of Gemini sort of summary answer at the
top. Obviously their original
business is 10 blue links, such something 10 links.
(28:07):
The top few are ads that companies are paying to be at
the top. Great.
That's their money, right? So the idea is people wouldn't
click on the links anymore. It's going to kill their revenue
biz ad revenue business just hasn't the fact that ad revenue
business is just growing as well, right.
So I think that's a key part here in why the stories turned
(28:27):
on the the Google stock. But yeah, it's just generally
the fact that they're going to be big beneficiaries of all
three phases and that they've got wild cards out there with
all their deep mind stuff going on with way MO, you know, all of
these other kind of sort of sortof side projects that could be
(28:47):
monstrous in the future as well.So look, Google's, Google's
smashing it and 50% up. Yeah, year to date obviously
showcases that. It's interesting though, because
Meta, if we just move on, Meta, very similar in one respect,
very similar, right? Amazing revenue growth.
They actually had a faster revenue growth than Google.
(29:10):
So their revenue grew at 26%. I mean, back to that point about
startup growth, this is insane. They clocked 51 billion, right?
So they only do half the sales that Google do at this point,
but their growth rate is 26%. And yet, so remember Google
share price popped 678 percent, then fell back and closed the
(29:31):
following day up three, Meta down 10%.
So why you could 20? I mean, what's Zuckerberg got to
do here? 26% revenue growth and yet the
stock price dumps by 10%. And so here I'm, I want to kind
(29:51):
of just delve into this, this kind of more broader story.
I know you want to talk about Amazon and maybe touch on Apple,
but what you want to do that first?
And then I'll talk about the broader story because why?
I mean, why did Meta dump? I mean, we'll come back to.
So I'll just give a quick overview of some of the numbers
(30:13):
because these are, you know, important companies to be aware
of. So Apple beat Wall Street
expectations very much in line with what you're saying.
So their sales, 102.5 billion. So welcome to the club.
Yeah. And then also, that's the first
time Apple has ever topped 100 billion in a September quarter,
(30:36):
right? So there's a bit of seasonality
too. Their shares actually initially
dipped and then they rallied andwent after the earnings came
out. So bit of a mixed bag here of
things to to look at. So iPhone sales rose 6%.
So that was at 49 billion. So actually missed expectations.
But demand for the higher pricediPhone 17 Pro models boosted
(31:00):
your average selling price, which is an important factor.
The other things here was China again, so China has been a bit
of a thorn in Apple's side for some time and it continues to be
the case. China revenue was down just over
3 1/2%. So analysts were expecting 16.4
billion. It came in at 14.5.
(31:20):
That's a meaningful miss. But I guess in some ways it's
not new news. China has now declined in seven
of the last nine quarters for for the for the company.
The bright spots when you talkedabout interesting the layers of
this kind of like Google has, soon the service side, the App
Store, iCloud, Apple Music, so on record 28.8 billion, up 15%.
(31:48):
In terms of some of the other kind of line items of revenue,
Mac revenues jumped 13%, new products coming out, iPad and
wearables pretty flat. So despite the China issue, the
one thing that helps the stock price reverse was guidance,
because at this time of year going into November, analysts
(32:10):
and investors are very keen to get the early signals of how
they anticipate the holiday season to go, which is a
meaningful part of the year for the company.
And Apple guided the holiday quarter to be effectively huge.
Revenues expended to rise 10 to 12%.
It could be the best iPhone quarter in the company's history
(32:31):
as well. So, so, so don't let us down Tim
Cook, if you're going to put outthat kind of feelings.
But Tim Cook also, as you would expect, putting out the usual,
as you said, let's just plug in an AI phrase.
And we know that they are quite far behind to put politely in
terms of the AI race. But Apple doubling down on AI.
(32:53):
He went on to talk about a new Siri is coming next.
And I know you're a big fan of Siri, Piers and then some
upcoming launches, smart glasses, smart home devices, all
part of the long term plan. What's interesting, I find for
an innovation perspective, you watch the NVIDIA conference and
what Jensen's talking about and then you watch what Tim Cook
(33:13):
talks about. You're like, these are just two
different companies here. This is kind of like 1's cutting
edge technology. The others is like this old
industrial company from like a the pre industrial age coming up
with some new things. But nonetheless, Apple earnings
were fine. So it's a big, big, big good
parts and negative parts, but overall nothing too exciting.
(33:36):
I'd say. Amazon on the other hand, yeah,
I mean we're talking about one of the world's largest companies
just going through the roof. They smash their expectations.
So those sales numbers 180. Billion.
So easily beating forecasts, AWS, so Amazon Web Services that
(33:59):
jumped 20%. So again, these numbers are
insane. Fastest gross in almost three
years. But again.
Key there. Yeah.
I think when you're kind of looking for all of these
different potential signals thatyou can get on, is this an AI
bubble and how far down that road are we or excessive in
valuations? This is just other reinforcing
(34:23):
points within that supply chain that things are looking pretty
solid, so. And with just on the AWS with,
so I mentioned the big three like AWS, Google Cloud, well, I
should say AWS and Microsoft Azure are kind of kind of neck
and neck from a revenue point ofview.
Google clouds below them, but catching fast.
And actually over the last couple of years, Amazon's AWS
(34:45):
growth has been way short of theAzure and Google cloud growth,
implying that Microsoft and Google are winning more of this
increased AI market share than Amazon were, right.
So that growth rate on AWS in this earnings report was like,
aha, finally, right? They're actually, they got their
act together now they're actually enjoying some of this
(35:08):
AI boom on the cloud side, whichthey weren't really getting much
action on before. So I think that's that's one of
the key parts in. And I think better integrated
into the AI narrative, which it obviously gets a better
valuation than doing smart glasses or home devices that
Apple are doing from an investor's perspective, right Is
that CEO Andy Jesse was talking about Amazon's retail chat bot.
(35:32):
So the chat bot Rufus is called could add around 10 billion a
year in sales is what they're. Why is that on talking about the
Amazon platform, I've not come across it.
I haven't seen that. But maybe it's a roll out
feature in North America first. Not sure Bedrock access AI
platform could become as big as EC squared.
(35:55):
I wasn't sure what that was but I looked it up.
That's just that's virtual servers in the cloud.
Yeah, that's the AWS kind of that's that underpinning
foundation of AWS basically fromA and.
Then there's custom AI chips. They're already sold out
Shenanium 2, they're called. And then Amazon doubled data
(36:16):
centre power since 2022 and plans to double again by 2027.
So it just it just fits bet muchbetter into that that ongoing
narrative, I would say. So despite concerns about
overspend on AI, and I know you're probably going to talk
about this in the summary, it's kind of the the spending and the
(36:37):
realities of it. But their shares jumped 13%
after these numbers came out, which is just just incredible. 1
soft spot that did get flagged was profit margins did slip
because of spending heavily on data centres and automation.
So operating income slightly below expectations.
(36:59):
International North American margins both missed slightly,
but again, to round off holiday quarter, what's that going to be
like? They said better than what Wall
Street had been anticipating. Revenue projected check this out
at 206 to 213 billion. Wow, OK, forget 100 billion to
(37:22):
what in the net in the court in the holiday quarter to.
One, yeah, yeah, the holiday quarter, that's why I've got
noted here, I've got a finger misprint.
So yeah, incredible. But yeah, talk, talk to me about
the step back, Yeah, the broaderview for these Ted stocks.
Well, look, I think to date, yeah.
I mean, look, you, I guess you take Amazon and Meta there,
(37:45):
right? Amazon up 13%.
Meta, I just checked, actually we're down 11%.
All right? The rest were kind of somewhere
in between. Alphabet up 3, Apple up a little
bit, went down and up a bit, right?
The rest are in between. But like you take those mega
extremes, Amazon up 13, Meta down 11, basically, I would say
(38:05):
broadly speaking, up until now, these tech stocks have been
benefiting from, you know, superstrong revenue growth, which has
been a kind of that that the keymeasure that this AI spend is
justified because check out what's going on with on the
revenue side, right? But I think what's going to
(38:26):
happen from this moment onwards?So we've seen it with the
Metastock reaction. I think this we did draw a line
in the sand chapter, whatever chapter we're on here of this AI
thing, that chapter's finished. We're into a new chapter now.
And this is going to be much more about, well, what's the
impact to margins off the back of this ridiculous spending
(38:50):
that's going on by these big tech firms, You know, the amount
of billions that they're throwing at data center build
outs and all this kind of stuff.It's like, well, OK, I get
you're competing with each otherand you don't want to lose the
race. And so you've got to spend,
spend, spend, spend, spend. But but ultimately, to what end?
And is there going to be a return on investment revenue
(39:11):
growth wise things is nice and solid, right?
We've talked about that. Meta up 26%, right?
And if you actually look back atthe last four quarters, the
average revenue growth, I'm going to take the Big 5,
Alphabet, Amazon, Apple, Meta, Microsoft, OK, I'm taking Tesla
and NVIDIA out here, which are kind of wildly more, way more
(39:31):
volatile. So I'm taking these 5 only.
So last four quarters, the revenue growth has been Alphabet
13% on average, Amazon 11, Apple7, so slower.
That's why it's been underperforming, not part of
this AI success story yet. Meta 21%, best out of the whole
(39:53):
lot, Microsoft 16, OK, that's the previous four quarters.
Looking ahead, it's actually about the same.
Well, for the next 4 quarters, the forecasted revenue growth of
all of these businesses. Is is about the same with one
caveat on Meta. So one reason why Meta stock
dumped 11%, even though broadly their numbers look quite similar
(40:16):
to Google, one reason was the trend.
So their growth rate is decelerating.
So last four quarters, 21% average next 419, Alphabet, it's
13 over the last 413 over the next 4, right, Compounding at
the same rate. So meta's got a slightly
decelerating growth rate and obviously investors don't like
(40:40):
that much, right? But that aside, that's a small
.21% to 19%. It's not a, it's not a disaster,
right? Point is revenue growth looks
really solid. But when you start to look at
the EPS, the earnings per share growth, well then last four
quarters, Epic, you know, Alphabet 37%, Amazon 54%, Apple
(41:00):
31, Meta 37, Microsoft worse at 19, but like Epic stuff, OK.
But then when you take a look atthe next four quarters, this is
where it just all falls off a Cliff.
So Alphabet 37% last four, next 4-5 percent.
(41:20):
Amazon 54% growth in the rearview mirror, looking ahead
2%, Apple 31 going down to seven.
Meta 37%, going down to 1%, Microsoft 19.
And actually holding up, we're expecting 16 looking forwards
from Microsoft. So why?
Well, there's 2 words. Why?
Depreciation expense. Oh yeah, baby.
(41:45):
Oh yeah, baby, you roll the house when you're out chatting
to girls at the bar tonight, Piers.
It's all about that depreciationexpense.
Didn't you know when these companies start talking about,
yeah, we spent whatever billionslast year and we're going to
double it and spend another twice that next year in terms of
(42:06):
build out data center, build outcapital expenditure.
We're in this race. We can't fall behind.
We've got to spend. We've got to double spend,
double spend, double spend. Well, what how does this work
from a kind of kind of accounting point of view?
It doesn't all drop onto the bottom line that their profits
so far haven't been impacted by all this spending because they
(42:28):
do this accounting trick of basically capitalizing the costs
and spreading that cost. Even though they spent it all
this year, 2025, let's say they spread it evenly and over like
the next seven years. So they only take one seventh of
the hit this year, OK, to the bottom line.
(42:48):
The problem is if they then spend a load next year, right?
Well, they only take one seventhof the hit and the rest gets
spread out into the future. But you've got last year's one
seventh coming in now as well. So you've kind of got 2
sevenths. Then the next year, right?
It, it kind of rolls you only that the spending that specific
year, fine, you take one seventhhit and it gets spread out.
(43:09):
But now you've got the historic stuff that you've got to now
it's catching up with you. So the point is we're into what
it'll be year 3 or even year 4 of this AI boom in 2026.
So the the, the kind of stepped spending from behind is starting
to add up, OK. And as they're accelerating
spending as well, point is it's really going to start to weigh
(43:32):
on that bottom line. And I think Meta are right in
the crosshairs here when you start looking and really
drilling down into stuff like, well, so in terms of their
capital expenditure, Meta, for example, this 2025, they spent
70 billion. Next year it's going to be 104,
which is kind of in line with everyone else.
Alphabet spent 90 this year. They're going to spend 107 next
(43:55):
year. So that's key.
Alphabet, all right, spent more this year, but the growth of
capital expenditure at Alphabet slower, even though it's the
same like 107. Alphabet 2026 versus 104 from
Meta, but Meta of their, their growth rate of expenditure is
much more rapid. And the problem with Meta is
(44:15):
they've got much less profit. They've got half of Alphabets
revenue and of course the profits are like nowhere near as
well. And so when you start to look
down onto free cash flow, then actually out of all of these
five companies based on projected spending for next
year, met as the only one where the percentage change in free
(44:39):
cash flow is going to go down. We're expecting a 32% drop in
free cash flow next year. Everyone else's free cash flow
continues to March higher. Even though they're spending
more, their revenues are greaterand their profits are greater.
And so Meta is the one here that's, I guess it's the
smallest fish in this pond trying to fight to keep up,
(45:02):
which has been fine up until now.
But ultimately, because of this depreciation expenditure thing,
it's really going to start to hit the bottom line.
And that's what investors are going to be worried about next
year. Either they really start to get
that revenue engine revved up and you start to see much more,
much faster revenue growth than we're projecting because the
(45:25):
return on investment or all thisspend is going to actually start
right now. But people aren't expecting that
next year, probably not even theyear after either, if you listen
to Zuckerberg. So here's the problem.
We're probably going to go back into another bit of a black hole
here, particularly for Meta, where their spending's kind of
way over the top. So that's why their share price
got a massive hit by 11% yesterday and I think we're into
(45:49):
a new chapter for this race. Are you talking bearish?
Meta gets me excited. No, not for the downfall, but
for the quite the opposite. Because I remember when it was
the nail in the coffin moment and it was the right side for a
meta. But I I'm not sure.
I don't know if you how quickly you can pull it up, but metas
(46:09):
over what, an 18 month period? So probably more than a year.
I mean, they've been on an absolute tear right over the
last. Yeah, well, they're, they're
like, so they they have been through this cycle as you're
hinting at. Yeah, that was pre AI boom.
This was the metaverse. You'll remember we're actually
back in 2021, Zuckerberg was going right.
We're going to we're going to build this metaverse, probably
(46:31):
going to take us a decade, but we're going to spend huge
amounts of money on it, right. And then in in the end,
investors went, what this matter?
Is this going to work? It's so far away.
Is this really worth it? And actually the stock price got
hammered and troughed at the endof 2022 at 84 bucks.
OK. And that that was a multi, that
that was a kind of, that was Lowe's not seen since the
(46:53):
naughties. Oh I still share myself that sub
100. Yeah, 84 bucks.
It topped out in the summer 786.It's been a decent run, but you
know this isn't new. I guess this year whilst this
(47:16):
rally's been going on broadly, even before their earnings where
their share price dropped 11% that they were kind of still
treading water around where theywere trading back in June,
right. So they they had kind of kind of
their up trended stock and it had been more of a side, you
know, sideways at all time highs.
But this sell off now has taken us back.
(47:37):
Yeah. We haven't seen these share
prices for Meta since since May.And actually if you go back,
lots of volatility with the Trump tariff thing.
So actually we were trading these this share price back in
January for Meta. But I do think that I
personally, I think there's downside risk here for Meta
still. I, I reckon over the next few
quarters, this is going to be the worst part where their
(47:59):
spending is going to ramp. It's going to really hit that
EPS. And unless something currently
unknown happens in a positive way, I just think that's going
to be, that's going to, that's going to be a negative theme for
Meta now. They might then turn the corner
and shoot off like they did lasttime.
But yeah, I'm a little bit worried for for for Zook in the
(48:23):
coming six months. No, it's interesting with the,
the, the stark difference in terms of the within that, that
Batman, let's say, or the Mag 7,whatever you want to call it,
the high concentration within those tech stocks.
I was just thinking about if you're just a passive investor
putting money in your S&P 500, what are you actually betting on
(48:44):
these days compared to in decades gone by?
I mean, it's so different now, isn't it?
It's just a bet on big Tech. It's a pure tech play.
But, but, but, but I say that, but then if you think about
NVIDIA back-to-back to the startof the conversation, is it a
pure tech play? Because where's Nvidia's revenue
(49:05):
coming from all sectors? So from, from that respect, you
kind of even though it is tech, it's kind of, it's just economic
growth, right? And if this AI thing works, not
the whole AI revolution, well then all sectors are going to
(49:26):
benefit. It's just we're still in that
early phase. So it's those kind of the
infrastructure build out people,the Nvidia's that are kind of
currently the poster child. All right, well, let's see if we
can wrap up and get through the Fed in the next, you know, 7-8
minutes or so. So the Fed earlier this week cut
interest rates very much as expected.
(49:46):
The federal funds right now at 33/4 to 4%.
But Powell warned strongly that another cut in December is not
guaranteed. Markets had priced again.
The cut was expected, but markets were looking for a 90%
chance of another cut following it.
That decreased to around now just a 60% probability.
(50:07):
So, yeah, maybe I know we talkedabout this at depth about the
balance sheet and there's a few bits there maybe to update on.
But some of the language, What do we hear here from the Fed?
Yeah. I mean, all the balance sheet
stuff, obviously the rate change.
So they cut, you know, that thatthat was all expected stuff
basically. So really the key take away
(50:28):
here, here are some of the wordsused by Powell regarding that
December cut probability. And he said it's far from
assured given for two reasons really a given strongly
differing views on the committee.
So again, we had two dissenters,right?
(50:50):
So they cut rates by 25 basis points.
They had two dissenters, two people disagreed in both
directions. So you had one member saying no
cut. Basically.
They're worried about inflation,which is ticking up.
They're worried about the fact the government's shut.
So we're not getting any up to date data flow.
OK. That's what they're concerned
(51:10):
about. He then got Trump's, what's his
name? I've forgotten his name now.
Mirren, is it Trump's guy in hisback pocket?
He wanted A50 basis point cut, right?
So you've got those two dissenters.
So Powell's saying one of the reasons why it's not really
certain yet what we're going to do is because, look, this
committee's really split #2 use a really good analogy, which I
think's, you know, makes a lot of sense.
(51:32):
He said if you're driving in thefog, you slow down, meaning,
well, the government's shut. We're not getting any up to date
data flow on the labor market, on inflation.
Without visibility, how can we make decisions?
And so that's his argument. And so he's saying markets, you
(51:53):
know this 90% probability thing,you've got to back off that.
We're nowhere near that certain to be cutting.
He's not saying they're not going to cut.
He's just saying markets, you'vegot to rein it in a little bit.
It's not as clear cut as your pricing.
So it went from a 90% chance of a December cut.
I think we're down to a 60% chance now, last measure.
(52:16):
So that that's the main take away from from the whole
meeting. So at the moment then, it's
awaiting updates. What from Capitol Hill?
What how's that going to play out?
They need the data points to be more informed.
Yeah. And that's kind of playing here
at the moment. Well, you've already got most
(52:37):
people fully expecting this government shutdown to be the
longest ever. Like, you did ever hear anything
about it, do you? I mean, I mean, all right, I
know it's earnings season. I know Trump's talking to Z, You
know, I know there's big stuff going on, but you'd have thought
you'd be hearing something aboutnegotiations going on behind the
(52:58):
scenes to get this thing resolved.
But this just seems to be radio.Silence.
The fact that you're not is exactly why I think you're
right. There's going to be a record
shutdown because the negotiations only happen when
your feet, your toes are dangling on the edge of the
Cliff. And we haven't got to that point
anywhere near that point yet. So no, there's no need to even
converse with the other side of the table at this point.
(53:20):
Not until there's leverage enough that there's the threat
of something more material. So.
So pallet pals, to be fair, I kind of agree with him, right?
It's only because inflation has been ticking up.
So if you're just going to extrapolate trends, whilst we're
blind and we don't have any moredata, let's just extrapolate
(53:43):
what was going on before, which was a softening of the labor
market that was going down and an uptick in inflation that was
going up. And the problem is you don't
want to be cutting rates if inflation's trending up.
You do want to cut rates if the labor market is trending down.
So that's their key problem, right?
And whilst you're blind, yeah, Imean, you just slow down a bit,
(54:06):
don't you? It's great.
Great analogy. Yeah.
That's the headline for the showright there.
All right, good stuff. So, as ever, if you've made it
through to the end, thank you somuch for listening.
Hope you found that useful. I know lots of students I met
this week are deep in interviewsand things like that, so
(54:27):
hopefully this is useful. Wishing you all the best and
we'll see you next week. Have a great weekend.
Hello, and welcome back to the Market Maker podcast.
We've got 3 themes, as always, that we're going to talk about
#1 is NVIDIA just became the first company to briefly top $5
trillion because it went over that.
Mark came back a little bit. What happened in one meeting
with Trump and Jie that wiped billions in minutes?
(00:22):
We'll look to explain then. A good segue is the big tech
earnings. Big tech all beat earnings this
week, but one sword one crashed 11% on almost the same numbers.
So that's the difference. You know, a single shift in what
markets now care about is something I know you want to
(00:42):
talk about a little bit, Piers. And in fact, I did read 1
journalist talking about the theMag 7 moniker.
Looks more like it needs updating.
Do you know what it's going to be updated?
To I don't know. Batman.
Oh. Batman So Batman 2MO2A S.
(01:06):
OK, SO2M's 2A's. Any idea who the B is?
Well, I say I'm getting. I'm getting stumped by the B
straight away, which is why I'm not really getting much further
through the acronym B would be. I don't know your misery.
(01:26):
So the B is actually the 6th largest company in the S&P 500
by index weighting. And that of course has everyone
listening about everyone. As everyone listening knows,
it's Broadcom. Oh, Broadcom, of course.
Getting hoovered up in that the AI storm of course bigger than
(01:46):
Tesla, bigger than Meta is Broadcom.
And so if you were to put the The Batman together, it's worth
an high watering $24 trillion combined and that's about 40% of
the S&P just. For a big context, Batman.
So you've got Apple, Tesla, Meta.
(02:09):
Microsoft, Apple. Amazon.
Apple, Amazon and the Netflix, Is that the end?
No NVIDIA, not Netflix. Come on.
Of course. What?
What era are you living in? Netflix?
Come on, this is like a week five years ago.
Can we just start this episode again?
It's a bad start. So you're going to quiz me and
(02:29):
I'll go. So I've got my I've got my chat
chief ET ready for when you quizme.
Bang in those, those those questions as you're not
speaking. And then the third theme we've
got is the Fed cut rates again earlier this week.
But Powell somewhat surprised the markets by warning the next
cut might not come at all. And so what's speaking the Fed?
(02:52):
Please. Yeah, happy Halloween, folks.
And then a couple of shout outs quickly before we begin very
quickly, Adele, Rea and Charles at Warwick University, they've
been a huge help to supporting alot of our campus presence at
Warwick in the past week. Simmi, who actually came up to
me in one of these events and said she'd been listening to the
(03:12):
show Piers since she was at college, so doing her A levels.
And they used to actually have it in their form shooters and
listen to it together. Oh, right.
And then they've all gone on nowto secure jobs.
She's going to Deutsche Bank. So that's pretty cool.
That's very cool. And then Slavic, who stopped me
in a Leon Cafe in London yesterday, he had a suitcase
(03:36):
with him, his full suit on, and he said he was just about to get
an interview at Deutsche Bank across the road.
So I hope you smashed it. Sure you did.
But look, let's dive in. And let's start with, I guess
with NVIDIA as a talking point, perhaps I can talk a little bit
about the rice and then you can talk about the little bit of
volatility that came on the backof this highly anticipated
(03:58):
meeting between the two heads ofstate.
So NVIDIA, first company ever tocross 5 trillion.
I was just thinking those milestones that were put out for
Elon at 10 trillion. Tesla, you're like, wow, we're
already, we're already talking fives now.
And I know Tesla's are way off the NVIDIA pace at the moment,
but you know, they all, you know, one's moving the other.
(04:21):
They are collective, right? With the S&P, the concentration
that's 40% for Batman. I mean, if they're all moving,
then everything's going to move to some respect.
So that 10 trillion doesn't sound as radical as it did just
six months ago, never mind five years.
So it will be be interesting having a look at this 5 trillion
(04:45):
some context. So that company now accounts for
nearly 110th of the entire S&P 500 as a metaphor because people
love to say this not quite. I know the technical you'll get
shouted out for the technical comparisons, but Nvidia's value
exceeds the GDP of nations like India, Japan and Germany.
(05:05):
Just to give it to give it a bitof.
It's the third, it's the third biggest in the world.
There's only the US and China that are bigger than 5 trillion.
That's just insane, isn't it? But yeah, how did this happen?
So just a quick brief history oftime.
So product execution and demand for this Blackwell.
You're going to read and hear about Blackwell a lot.
(05:27):
So NVIDIA confirmed it had shipped 6,000,000 Blackwell
ships so far and has orders for another 14,000,000 over the next
five quarters. I thought I was going to say
five years, 14,000,000 over the next five quarters.
So that represents roughly half a trillion dollars in sales, I
(05:51):
mean. Yeah, in, in 15 months.
Right, and that's your order book like so this isn't like
forecast. That's just expectations rough
finger in the air. This is an order book.
So this is insane. And that's what bump choose to
stock 5% on on Tuesday. The other big thing NVIDIA had
was you might have seen very snazzy conferencing in DC in the
(06:14):
States, Jensen Huang doing his best work as he always does on
the on the stage, but they continue to secure business
through partnerships. It's kind of like we've talked
about a little bit before, bit of a circle jerk.
But that aside, there's this idea that that how, how do you
really secure your order book? Well, you do it through
(06:36):
strategic alignment with partnerships and this keynote
speech that he gave Nvidia's first ever tech conference that
they held. Here's just a flavour of some of
the some of the clients that we're talking about.
You might have heard of this number one client it's the US
government. So they're pretty good pretty
good side bills, pretty good perk, pretty reliable customer.
(07:01):
So the US Department of Energy, they're working together to
build 7 new supercomputers, including one system using
10,000 Blackwell GPUs. So that's one Uber collaboration
to build a fleet of self drivingcars.
Eli Lilly agreement to sell 1000GPUs for drug, drug discovery
(07:21):
workload. Nokia, yes, still alive
partnership to help develop nextgeneration 6G cellular cellular
technology. Planteer.
Oracle new tie UPS, enterprise cloud deployments, obviously
robotics ecosystems that was more about AI power initiatives
for Amazon, Foxconn, Caterpillar, I mean these are
(07:43):
some of the biggest companies inthe planet.
Across sectors, right, right, which is that could diversity
there in terms of their order book across sectors?
Yeah. So this 5% move which is which
is huge for a company this magnitude that we saw at the
beginning of the week. So it was the update on that,
(08:04):
that order book, the demand on this black World chip side, all
of these strategic partnerships that they're announcing.
And then on Wednesday, Trump said he planned to discuss
Nvidia's Blackwell AI chips withPresident Xi Jinping calling,
calling them super duper. So technical as ever is the US
(08:24):
president. But his his remarks were were
coming ahead of a meeting in South Korea.
The statement. So for the context here though,
the reason why the market got very excited was about access or
potential regaining access to China, world's largest market
for AI hardware. So since two 2022, US export
(08:47):
restrictions have effectively banned NVIDIA selling its most
advanced chips to Chinese buyers.
And that market share went from pretty much completely
everything 95% to 0. Trump had previously talked
about a watered down diluted version of the technology that
he could sell to the Chinese. But who, who, who's going to
(09:07):
want to buy, buy that. So investors are very much this
idea of, OK, the company is doing really well.
The the China part is like the cherry on the cake that could
really unleash the next move. And so that hasn't hadn't
happened, but just the signal that they were going to be
(09:28):
talking and this was potentiallyon the table and Trump sounding
positive, that got us there. So that's LED us to the meeting.
So tell us what happened at thatmeeting.
Well, yeah, I mean that that back story is important.
I mean you say, well, I want to challenge two things you've
said. So you said that China market
shares gone to zero. I would, without any sort of
(09:54):
clear hard proof, I would speculate that's not true.
And that whilst the export restriction is in place, there's
plenty of Blackwell chips getting through to China via
other markets, Singapore, Vietnam, right, there's cut,
there's shell companies getting set up in these other countries
(10:14):
buying Blackwell chips And then shipping them through the back
door into mainland China. So there's definitely a bit of a
sort of circuitous route around that, that kind of tariff
barrier. This goes to show the different
social circles we hang out in. But obviously the volumes are
heavily reduced than what they would be if the tariff barrier
(10:36):
wasn't there, clearly, right. So secondly, yeah, so the idea
has been that and Trump has beentalking to Jensen over at NVIDIA
about, right. Can you come up with a chip
that's less, less powerful? And it's like we, I think it's
80% of the kind of power or whatever term you want to use to
describe the output of these things, right?
So an 80% version. And maybe that's a a kind of a
(11:01):
chip that the US government's prepared to allow to get
exported. Of course, the US government's
kind of stance here is they wantto kind of kneecap the ability
for China to keep up in the AI race, right?
And obviously the NVIDIA chip isthe king of all chips in this
race. And so if they're not, if they
can't get their hands on those, it'll slow them down.
(11:21):
That's the whole point, right? And so, right, maybe Trump will
allow an 80% Blackwell chip. I would say who you said, who
would want to buy that? Well, to be honest, an 80%
Blackwell chip is probably better than any other chip
available to the Chinese. So actually, even 80% still best
in class in China, I would say. So there is a market for it.
(11:42):
So this meeting, yeah, as you said, teed up.
Let's see. Trump came out of it.
Here's what he said. It was an amazing meeting.
On a scale of zero to 10, with 10 being the best, the meeting
was a 12. So love it.
(12:02):
Good, good old Donald unpeel thelayer off the top of that
comment. What got agreed in this meeting?
Virtually nothing. Did they talk about NVIDIA and
Blackwell? Not once wasn't even discussed,
which is why the NVIDIA share price then took a bit of a, you
(12:24):
know, about turn and a nosedive because obviously the
anticipation and the hopes were right.
That would be a key item on the agenda.
Some of it would get agreed. Great.
The tariff barrier would be reduced, removed, whatever.
They didn't even talk about NVIDIA.
So what did they talk about? Well, not much, to be honest.
And well, they talked about a few things.
(12:45):
What got agreed was not much. So.
So what got agreed? Well, again, in Trump style,
Trump kind of piled out and going, yeah, you know, this is
amazing. They've agreed to buy massive
amounts of soybeans because thishas been one of the China's sort
of levers in this kind of war. China buy a lot of soybeans,
soybeans off US farmers. And they've been restricting
(13:08):
their purchases as part of this war, right?
Well, China have now agreed to step up purchases.
And so they're going to be buying 12 million tonnes this
year. It's going to go up to
25,000,000 tonnes next year and over the next three years.
And Trump's like, yeah, massive soybean deal got done.
That's just returning the sales volume to the 2024 volumes.
They're not, this isn't like a mega amazing deal.
(13:30):
It's like just, OK, return back to last year's levels.
The other thing they talked about was China postponed their
rare Earth's controls. So another key lever, the
biggest lever of all that China have in this battle is their
dominance over rare earth supplyto the planet.
And obviously that's a key component in everything
(13:51):
electronic. So they've agreed to kind of,
you know, postpone their their threat to curb exports out of
China. So that's obviously something
key. But we were expecting that that
kind of got sounded out and meted out about a month ago.
So it's not really a surprise. Then other little bits.
They suspended measures targeting each other's
(14:11):
shipbuilding industries. The US is holding off on its
extension of tech related exportcontrols and basically halving
that fentanyl tariff, which, youknow, what kind of impact is
that going to have on China? Minimal.
It might lead to point 1.2% bumpup in their GDP.
(14:31):
Look, this is a obviously a top level meeting between the two
big guns and it's optics mostly what actually got decided there
and then in that meeting, very little.
But look, it was only a lot, 1 hour long.
I mean, what can get done in such a short space of time,
right? But yeah, Trump loves the same
bite and so piled out super positive, but in reality, not
(14:55):
too much progress got made. What?
Was interesting is just before we jumped on to record this, I
did go back and watch some of the the keynote from from
Nvidia's conference and wow was that a homage to make America
great again I mean. Really.
The political alignment of this is almost outrageous.
(15:17):
It starts with like the the the original foundations of the
American country and it starts with the word America on the
screen. I mean, Jensen is going full
board into into the Trump world at the moment for obvious
reasons, I guess. But yeah, anyone have a look at
(15:38):
that on YouTube? It's it's quite amazing how that
starts. It's like an advert for tourists
of of America. It's how far he's gone.
But look, there's lots to talk about in this episode.
So maybe as ever, our fabulous researcher Saab does a really
good section on strategic themes, which sort of summarizes
a lot of the topics that we do. So maybe I'll just whip through
(15:59):
that and we'll move into some ofthe big tech earnings.
So summarize then this NVIDIA situation.
So AI craze and valuation lift Nvidia's brief jump to $5
trillion. Just talking about this idea of
the AI boom can pour single hardware leader into an economy
sized valuation. So AI demand still both real,
(16:22):
still compounding. Everyone's talking about the
bubbles. I'm sure there'll be many on the
fence who will say this is further evidence of the bubble
that we're at. But hard to go against that
client roster and order book information that came out this
week, Yeah. There's that like one point just
just to interrupt that order works awesome.
(16:44):
Amazing. That's not guaranteed money in
the bank though in the future, right?
That's an order, you know, can these customers afford to
actually fulfill those orders? Is is a is the risk but but
yeah, so sorry, can't have. Two point, second point, policy
(17:06):
headlines. So just a responsiveness, you
know, if NVIDIA moves 5%, the whole market moves to some
respect over that very brief period of time.
So yeah, just the whiff of smelling of selling, sorry, some
of these AI chips into China. So definitely continue to
monitor those trade dialogues very closely.
Fundamentals as the stabilizer. I think that's a nice way of
(17:26):
summarizing it, which is you cankind of get these ebb and flow
of the trade bill. That volatility level is
obviously heightened given the the negotiation techniques of
Trump and the way he tends to approach these things.
But underlying that and that aside, as we've discussed, the
fundamentals are looking pretty solid at this moment in time on
(17:47):
that real demand, the political alignment just discussed, that
is Huang's visible cooperation with the US goals.
A couple of these things were from producing in Arizona to
praising the economic agenda to doing large US deals.
You know every you know, he's putting the company at this
center of making America great again with manufacturing and
(18:10):
he's his company's at the epicenter of that and then
approving US China tone. I mean, you said not a lot has
come of it, but as you and I know, just the fact that they're
talking is actually a meaningfulthing.
And given the fact that what it was only a week ago that had a
bit of a Barney and a fallout. So it is a lit coming a little
(18:34):
bit farcical. And I guess one thing is what do
you think about the idea that the magnitude of market reaction
to some of these potential Trumpmachine engagements will start
to get diluted over time? Because the nature of it's
becoming quite a behavioural trend now that we get this
fallout talk deal, fallout talk deal, Yeah.
(18:57):
And it's becoming quite regular pattern.
Plus they are, you know, the trend is moving towards a deal,
right? And so whilst the speed of that
movement might be slow, you know, if you go back to April,
which is like 6 months ago, you know, there it was like, oh wow,
maybe it's 150% tariffs. No deal was like a genuine
(19:22):
thing. That's, that's, that's way
behind us out of sight in the rearview Mirror Now that, that
mega risk. So now, so the risks to the
outcome, you know, they're the best possible and the worst
possible risks have narrowed andnarrowed and narrowed as they've
gone along. And you know, so that that's
another reason why the market reactions would naturally be
(19:43):
smaller as well. OK, well let's talk about the
other big tech stocks and there's been quite a few of the
Batman Club, so which ones you want to start with first?
Well, I want, I've got, I want to talk about all of them
together, but maybe we should dothat at the end.
(20:04):
Let's tackle the kind of individuals first.
I want to talk. Let's take Google.
Or I should say Alphabet, if youwant to trade Google, you need
to buy Alphabet shares. Alphabet being the parent
company, but 99.5% of the value of Alphabet is Google.
But yeah, so let's talk Google. I mean, so you know, phenomenal
(20:27):
earnings. And look, you've got to
understand that coming into thisearning season, and we, I think
I mentioned this maybe last weekor the week before, these tech
stocks have been on an absolute tear, right?
The S&P index of overall is up 40% since the April low, since
the kind of tariff tantrum Aprillow is up 40%.
(20:47):
Now, obviously most of that is tech.
It's the big tech. As you've just said, Batman's
40% of the index, right? Obviously it's those big guns
that are leading that 40% charge.
Point being, these share prices are like super high, like
relatively. So, you know, to get any more
upside, having seen the huge climb behind, to get any more
(21:07):
upside, you need sensational stuff.
You know, these figures need to be off the scale good.
You know, just good is not good enough, right?
Because your share price is pricing in the absolute awesome
scenario. So what happened to Alphabet?
Well, actually their share prices went up and actually
overnight in overnight trade because these tech earnings get
(21:28):
released after Wall Street close.
So Alphabet and Meta and I thinkMicrosoft were on on Thurs,
sorry Wednesday night, so the 30th, so sorry, the 29th of
October Wednesday after the close.
Right now after the close, you still get this sort of like
(21:48):
closed market movie. So we we talk about after the
closed share price movement. So in after market moves, the
Alphabet share price was up I think 8% at one point at its
best or 678. And by the but, but by the close
of Thursday's session, it kind of come off a bit it was up, but
like more like 3%. OK.
So the Alphabet that's been one of the best performers by the
(22:10):
way, even out of the big tech interms of share price upside in
the last six months that that got a bit more on the upside
indicating obviously these numbers were phenomenal.
One thing that stood out to me, $100 billion in quarterly
revenue. Yes, that's that's quarterly
revenue. In three months, they sold
(22:32):
$102.3 billion worth of servicesfor the first time in their
history. That is just extraordinary.
And that was a 16% year on year growth.
That's the amazing thing about big tech.
They're so monstrous in size. And yeah, their revenue growth,
it's like, it's like a start up,you know, it's quite
(22:55):
extraordinary, right? So here's my pop quiz for you.
So they they got north of 100 billion in one quarter.
Give me name any other companiesin history that have notched
more than $100 billion worth of sales in 1/4.
It's going to be Amazon. Correct.
(23:19):
Yeah, there's one other. Rather of the big tech
meaningful. Not a tech stock.
So you think more think more Amazon in a way.
Not the techie part of Amazon. Walmart.
Yep, bang on. These are the monster retailers,
(23:41):
right? But they operate on super wafer
thin margins. OK.
So actually Amazon, I think theyhad a, their best was $170
billion in one quarter. Walmart clocked 180 billion
actually, but their margins are super SIM.
So when you take the top line, which is a hunt for for alphabet
102.3 billion. The most amazing thing is also
(24:04):
then their profit margin. So they actually generated $35
billion of profit in three months, which is absolutely
astronomical. The the numbers are just mind
blowing to be honest. But you know, why did the share
price rise? Well, those numbers beat
expectations. Their cloud business notched
(24:27):
over 15 billion in in one quarter compared to 11 billion
just the same quarter the previous month.
So obviously, you know, even more accelerated growth in that
cloud business side, which speaks to the obviously the the
AI boom and the, you know, data centre build out and the kind of
insatiable appetite for compute power that these AI models
(24:50):
require. And so obviously that's another
as well as Nvidia's order book, right?
It's the growth of these cloud businesses, Google, AWS, Amazon,
you know, as you're over at Microsoft, they're the big
three, you know, if they're motoring and growing super fast,
that's another sign that the AI kind of revolution is still
solid and growing. So yeah, look, Google smashed
(25:14):
it. Amazing stuff.
Just before you, just before youmove on to Meta, I think it is
you're going to talk about. I was just going to have a quick
look at the year to date performance and NVIDIA is
obviously a standout. They're up like 50%.
Next is and only a fractional A whisker behind is Google is
(25:37):
Alphabet. Yeah, Apple's up like 8.
Microsoft's up like 24. Google is up 50.
And do you remember everyone wassaying what again?
This was like less than 12 months ago.
It was like AI. They're not delivering.
They're behind the curve. You know, Gemini's rubbish.
They're losing the cloud market shares.
(25:58):
Not as rapid as some of the others.
Can't penetrate AWS. What's changed?
Well, I mean, I think what's changed is this, this as this
kind of AI revolution advances, people have thought a little bit
more, you know, to start with itwas just like buy anything
that's anything to do with AI, right?
(26:21):
It doesn't matter if it as long as it's got those two letters
attached to it by it. And NVIDIA were obviously the
starting point of that. I think as time's gone on,
you've got to understand how thephases of this revolution.
So, so firstly, it's like the chip builders, like the
obviously Nvidias, but then it'slike the data center build outs.
(26:41):
This is like the infrastructure layer, if you like.
And then obviously you've got tohave the apps that will enable
businesses to run more efficiently.
ChatGPT, right. So you've then got to have that
kind of product, you've got to productize it.
And then finally, it's actually the businesses themselves out
(27:03):
there across the planet, which will see efficiency gains,
margin improvements and therefore, you know, profits and
and and kind of share prices go up.
That's the kind of third and final part.
OK. Now as we're looking at this,
Google basically will benefit from all three phases.
There's very few companies, in fact, I don't think there are
(27:24):
any others that have got all three because they're building
their own chips. Actually, they've got some
really interesting stuff coming down the pipe to actually rival
Nvidias. They've got the cloud
infrastructure, so that's in place and they're benefiting
there. They've got Gemini, which is the
ChatGPT kind of rival. That's not so far at least
(27:45):
cannibalizing its big revenue stream, which is Google Search
ads revenue. OK, at the moment.
That's that's what people thought.
They thought that Gemini, which is when you Google stuff now you
just get that kind of Gemini sort of summary answer at the
top. Obviously their original
business is 10 blue links, such something 10 links.
(28:07):
The top few are ads that companies are paying to be at
the top. Great.
That's their money, right? So the idea is people wouldn't
click on the links anymore. It's going to kill their revenue
biz ad revenue business just hasn't the fact that ad revenue
business is just growing as well, right.
So I think that's a key part here in why the stories turned
(28:27):
on the the Google stock. But yeah, it's just generally
the fact that they're going to be big beneficiaries of all
three phases and that they've got wild cards out there with
all their deep mind stuff going on with way MO, you know, all of
these other kind of sort of sortof side projects that could be
(28:47):
monstrous in the future as well.So look, Google's, Google's
smashing it and 50% up. Yeah, year to date obviously
showcases that. It's interesting though, because
Meta, if we just move on, Meta, very similar in one respect,
very similar, right? Amazing revenue growth.
They actually had a faster revenue growth than Google.
(29:10):
So their revenue grew at 26%. I mean, back to that point about
startup growth, this is insane. They clocked 51 billion, right?
So they only do half the sales that Google do at this point,
but their growth rate is 26%. And yet, so remember Google
share price popped 678 percent, then fell back and closed the
(29:31):
following day up three, Meta down 10%.
So why you could 20? I mean, what's Zuckerberg got to
do here? 26% revenue growth and yet the
stock price dumps by 10%. And so here I'm, I want to kind
(29:51):
of just delve into this, this kind of more broader story.
I know you want to talk about Amazon and maybe touch on Apple,
but what you want to do that first?
And then I'll talk about the broader story because why?
I mean, why did Meta dump? I mean, we'll come back to.
So I'll just give a quick overview of some of the numbers
(30:13):
because these are, you know, important companies to be aware
of. So Apple beat Wall Street
expectations very much in line with what you're saying.
So their sales, 102.5 billion. So welcome to the club.
Yeah. And then also, that's the first
time Apple has ever topped 100 billion in a September quarter,
(30:36):
right? So there's a bit of seasonality
too. Their shares actually initially
dipped and then they rallied andwent after the earnings came
out. So bit of a mixed bag here of
things to to look at. So iPhone sales rose 6%.
So that was at 49 billion. So actually missed expectations.
But demand for the higher pricediPhone 17 Pro models boosted
(31:00):
your average selling price, which is an important factor.
The other things here was China again, so China has been a bit
of a thorn in Apple's side for some time and it continues to be
the case. China revenue was down just over
3 1/2%. So analysts were expecting 16.4
billion. It came in at 14.5.
(31:20):
That's a meaningful miss. But I guess in some ways it's
not new news. China has now declined in seven
of the last nine quarters for for the for the company.
The bright spots when you talkedabout interesting the layers of
this kind of like Google has, soon the service side, the App
Store, iCloud, Apple Music, so on record 28.8 billion, up 15%.
(31:48):
In terms of some of the other kind of line items of revenue,
Mac revenues jumped 13%, new products coming out, iPad and
wearables pretty flat. So despite the China issue, the
one thing that helps the stock price reverse was guidance,
because at this time of year going into November, analysts
(32:10):
and investors are very keen to get the early signals of how
they anticipate the holiday season to go, which is a
meaningful part of the year for the company.
And Apple guided the holiday quarter to be effectively huge.
Revenues expended to rise 10 to 12%.
It could be the best iPhone quarter in the company's history
(32:31):
as well. So, so, so don't let us down Tim
Cook, if you're going to put outthat kind of feelings.
But Tim Cook also, as you would expect, putting out the usual,
as you said, let's just plug in an AI phrase.
And we know that they are quite far behind to put politely in
terms of the AI race. But Apple doubling down on AI.
(32:53):
He went on to talk about a new Siri is coming next.
And I know you're a big fan of Siri, Piers and then some
upcoming launches, smart glasses, smart home devices, all
part of the long term plan. What's interesting, I find for
an innovation perspective, you watch the NVIDIA conference and
what Jensen's talking about and then you watch what Tim Cook
(33:13):
talks about. You're like, these are just two
different companies here. This is kind of like 1's cutting
edge technology. The others is like this old
industrial company from like a the pre industrial age coming up
with some new things. But nonetheless, Apple earnings
were fine. So it's a big, big, big good
parts and negative parts, but overall nothing too exciting.
(33:36):
I'd say. Amazon on the other hand, yeah,
I mean we're talking about one of the world's largest companies
just going through the roof. They smash their expectations.
So those sales numbers 180. Billion.
So easily beating forecasts, AWS, so Amazon Web Services that
(33:59):
jumped 20%. So again, these numbers are
insane. Fastest gross in almost three
years. But again.
Key there. Yeah.
I think when you're kind of looking for all of these
different potential signals thatyou can get on, is this an AI
bubble and how far down that road are we or excessive in
valuations? This is just other reinforcing
(34:23):
points within that supply chain that things are looking pretty
solid, so. And with just on the AWS with,
so I mentioned the big three like AWS, Google Cloud, well, I
should say AWS and Microsoft Azure are kind of kind of neck
and neck from a revenue point ofview.
Google clouds below them, but catching fast.
And actually over the last couple of years, Amazon's AWS
(34:45):
growth has been way short of theAzure and Google cloud growth,
implying that Microsoft and Google are winning more of this
increased AI market share than Amazon were, right.
So that growth rate on AWS in this earnings report was like,
aha, finally, right? They're actually, they got their
act together now they're actually enjoying some of this
(35:08):
AI boom on the cloud side, whichthey weren't really getting much
action on before. So I think that's that's one of
the key parts in. And I think better integrated
into the AI narrative, which it obviously gets a better
valuation than doing smart glasses or home devices that
Apple are doing from an investor's perspective, right Is
that CEO Andy Jesse was talking about Amazon's retail chat bot.
(35:32):
So the chat bot Rufus is called could add around 10 billion a
year in sales is what they're. Why is that on talking about the
Amazon platform, I've not come across it.
I haven't seen that. But maybe it's a roll out
feature in North America first. Not sure Bedrock access AI
platform could become as big as EC squared.
(35:55):
I wasn't sure what that was but I looked it up.
That's just that's virtual servers in the cloud.
Yeah, that's the AWS kind of that's that underpinning
foundation of AWS basically fromA and.
Then there's custom AI chips. They're already sold out
Shenanium 2, they're called. And then Amazon doubled data
(36:16):
centre power since 2022 and plans to double again by 2027.
So it just it just fits bet muchbetter into that that ongoing
narrative, I would say. So despite concerns about
overspend on AI, and I know you're probably going to talk
about this in the summary, it's kind of the the spending and the
(36:37):
realities of it. But their shares jumped 13%
after these numbers came out, which is just just incredible. 1
soft spot that did get flagged was profit margins did slip
because of spending heavily on data centres and automation.
So operating income slightly below expectations.
(36:59):
International North American margins both missed slightly,
but again, to round off holiday quarter, what's that going to be
like? They said better than what Wall
Street had been anticipating. Revenue projected check this out
at 206 to 213 billion. Wow, OK, forget 100 billion to
(37:22):
what in the net in the court in the holiday quarter to.
One, yeah, yeah, the holiday quarter, that's why I've got
noted here, I've got a finger misprint.
So yeah, incredible. But yeah, talk, talk to me about
the step back, Yeah, the broaderview for these Ted stocks.
Well, look, I think to date, yeah.
I mean, look, you, I guess you take Amazon and Meta there,
(37:45):
right? Amazon up 13%.
Meta, I just checked, actually we're down 11%.
All right? The rest were kind of somewhere
in between. Alphabet up 3, Apple up a little
bit, went down and up a bit, right?
The rest are in between. But like you take those mega
extremes, Amazon up 13, Meta down 11, basically, I would say
(38:05):
broadly speaking, up until now, these tech stocks have been
benefiting from, you know, superstrong revenue growth, which has
been a kind of that that the keymeasure that this AI spend is
justified because check out what's going on with on the
revenue side, right? But I think what's going to
(38:26):
happen from this moment onwards?So we've seen it with the
Metastock reaction. I think this we did draw a line
in the sand chapter, whatever chapter we're on here of this AI
thing, that chapter's finished. We're into a new chapter now.
And this is going to be much more about, well, what's the
impact to margins off the back of this ridiculous spending
(38:50):
that's going on by these big tech firms, You know, the amount
of billions that they're throwing at data center build
outs and all this kind of stuff.It's like, well, OK, I get
you're competing with each otherand you don't want to lose the
race. And so you've got to spend,
spend, spend, spend, spend. But but ultimately, to what end?
And is there going to be a return on investment revenue
(39:11):
growth wise things is nice and solid, right?
We've talked about that. Meta up 26%, right?
And if you actually look back atthe last four quarters, the
average revenue growth, I'm going to take the Big 5,
Alphabet, Amazon, Apple, Meta, Microsoft, OK, I'm taking Tesla
and NVIDIA out here, which are kind of wildly more, way more
(39:31):
volatile. So I'm taking these 5 only.
So last four quarters, the revenue growth has been Alphabet
13% on average, Amazon 11, Apple7, so slower.
That's why it's been underperforming, not part of
this AI success story yet. Meta 21%, best out of the whole
(39:53):
lot, Microsoft 16, OK, that's the previous four quarters.
Looking ahead, it's actually about the same.
Well, for the next 4 quarters, the forecasted revenue growth of
all of these businesses. Is is about the same with one
caveat on Meta. So one reason why Meta stock
dumped 11%, even though broadly their numbers look quite similar
(40:16):
to Google, one reason was the trend.
So their growth rate is decelerating.
So last four quarters, 21% average next 419, Alphabet, it's
13 over the last 413 over the next 4, right, Compounding at
the same rate. So meta's got a slightly
decelerating growth rate and obviously investors don't like
(40:40):
that much, right? But that aside, that's a small
.21% to 19%. It's not a, it's not a disaster,
right? Point is revenue growth looks
really solid. But when you start to look at
the EPS, the earnings per share growth, well then last four
quarters, Epic, you know, Alphabet 37%, Amazon 54%, Apple
(41:00):
31, Meta 37, Microsoft worse at 19, but like Epic stuff, OK.
But then when you take a look atthe next four quarters, this is
where it just all falls off a Cliff.
So Alphabet 37% last four, next 4-5 percent.
(41:20):
Amazon 54% growth in the rearview mirror, looking ahead
2%, Apple 31 going down to seven.
Meta 37%, going down to 1%, Microsoft 19.
And actually holding up, we're expecting 16 looking forwards
from Microsoft. So why?
Well, there's 2 words. Why?
Depreciation expense. Oh yeah, baby.
(41:45):
Oh yeah, baby, you roll the house when you're out chatting
to girls at the bar tonight, Piers.
It's all about that depreciationexpense.
Didn't you know when these companies start talking about,
yeah, we spent whatever billionslast year and we're going to
double it and spend another twice that next year in terms of
(42:06):
build out data center, build outcapital expenditure.
We're in this race. We can't fall behind.
We've got to spend. We've got to double spend,
double spend, double spend. Well, what how does this work
from a kind of kind of accounting point of view?
It doesn't all drop onto the bottom line that their profits
so far haven't been impacted by all this spending because they
(42:28):
do this accounting trick of basically capitalizing the costs
and spreading that cost. Even though they spent it all
this year, 2025, let's say they spread it evenly and over like
the next seven years. So they only take one seventh of
the hit this year, OK, to the bottom line.
(42:48):
The problem is if they then spend a load next year, right?
Well, they only take one seventhof the hit and the rest gets
spread out into the future. But you've got last year's one
seventh coming in now as well. So you've kind of got 2
sevenths. Then the next year, right?
It, it kind of rolls you only that the spending that specific
year, fine, you take one seventhhit and it gets spread out.
(43:09):
But now you've got the historic stuff that you've got to now
it's catching up with you. So the point is we're into what
it'll be year 3 or even year 4 of this AI boom in 2026.
So the the, the kind of stepped spending from behind is starting
to add up, OK. And as they're accelerating
spending as well, point is it's really going to start to weigh
(43:32):
on that bottom line. And I think Meta are right in
the crosshairs here when you start looking and really
drilling down into stuff like, well, so in terms of their
capital expenditure, Meta, for example, this 2025, they spent
70 billion. Next year it's going to be 104,
which is kind of in line with everyone else.
Alphabet spent 90 this year. They're going to spend 107 next
(43:55):
year. So that's key.
Alphabet, all right, spent more this year, but the growth of
capital expenditure at Alphabet slower, even though it's the
same like 107. Alphabet 2026 versus 104 from
Meta, but Meta of their, their growth rate of expenditure is
much more rapid. And the problem with Meta is
(44:15):
they've got much less profit. They've got half of Alphabets
revenue and of course the profits are like nowhere near as
well. And so when you start to look
down onto free cash flow, then actually out of all of these
five companies based on projected spending for next
year, met as the only one where the percentage change in free
(44:39):
cash flow is going to go down. We're expecting a 32% drop in
free cash flow next year. Everyone else's free cash flow
continues to March higher. Even though they're spending
more, their revenues are greaterand their profits are greater.
And so Meta is the one here that's, I guess it's the
smallest fish in this pond trying to fight to keep up,
(45:02):
which has been fine up until now.
But ultimately, because of this depreciation expenditure thing,
it's really going to start to hit the bottom line.
And that's what investors are going to be worried about next
year. Either they really start to get
that revenue engine revved up and you start to see much more,
much faster revenue growth than we're projecting because the
(45:25):
return on investment or all thisspend is going to actually start
right now. But people aren't expecting that
next year, probably not even theyear after either, if you listen
to Zuckerberg. So here's the problem.
We're probably going to go back into another bit of a black hole
here, particularly for Meta, where their spending's kind of
way over the top. So that's why their share price
got a massive hit by 11% yesterday and I think we're into
(45:49):
a new chapter for this race. Are you talking bearish?
Meta gets me excited. No, not for the downfall, but
for the quite the opposite. Because I remember when it was
the nail in the coffin moment and it was the right side for a
meta. But I I'm not sure.
I don't know if you how quickly you can pull it up, but metas
(46:09):
over what, an 18 month period? So probably more than a year.
I mean, they've been on an absolute tear right over the
last. Yeah, well, they're, they're
like, so they they have been through this cycle as you're
hinting at. Yeah, that was pre AI boom.
This was the metaverse. You'll remember we're actually
back in 2021, Zuckerberg was going right.
We're going to we're going to build this metaverse, probably
(46:31):
going to take us a decade, but we're going to spend huge
amounts of money on it, right. And then in in the end,
investors went, what this matter?
Is this going to work? It's so far away.
Is this really worth it? And actually the stock price got
hammered and troughed at the endof 2022 at 84 bucks.
OK. And that that was a multi, that
that was a kind of, that was Lowe's not seen since the
(46:53):
naughties. Oh I still share myself that sub
100. Yeah, 84 bucks.
It topped out in the summer 786.It's been a decent run, but you
know this isn't new. I guess this year whilst this
(47:16):
rally's been going on broadly, even before their earnings where
their share price dropped 11% that they were kind of still
treading water around where theywere trading back in June,
right. So they they had kind of kind of
their up trended stock and it had been more of a side, you
know, sideways at all time highs.
But this sell off now has taken us back.
(47:37):
Yeah. We haven't seen these share
prices for Meta since since May.And actually if you go back,
lots of volatility with the Trump tariff thing.
So actually we were trading these this share price back in
January for Meta. But I do think that I
personally, I think there's downside risk here for Meta
still. I, I reckon over the next few
quarters, this is going to be the worst part where their
(47:59):
spending is going to ramp. It's going to really hit that
EPS. And unless something currently
unknown happens in a positive way, I just think that's going
to be, that's going to, that's going to be a negative theme for
Meta now. They might then turn the corner
and shoot off like they did lasttime.
But yeah, I'm a little bit worried for for for Zook in the
(48:23):
coming six months. No, it's interesting with the,
the, the stark difference in terms of the within that, that
Batman, let's say, or the Mag 7,whatever you want to call it,
the high concentration within those tech stocks.
I was just thinking about if you're just a passive investor
putting money in your S&P 500, what are you actually betting on
(48:44):
these days compared to in decades gone by?
I mean, it's so different now, isn't it?
It's just a bet on big Tech. It's a pure tech play.
But, but, but, but I say that, but then if you think about
NVIDIA back-to-back to the startof the conversation, is it a
pure tech play? Because where's Nvidia's revenue
(49:05):
coming from all sectors? So from, from that respect, you
kind of even though it is tech, it's kind of, it's just economic
growth, right? And if this AI thing works, not
the whole AI revolution, well then all sectors are going to
(49:26):
benefit. It's just we're still in that
early phase. So it's those kind of the
infrastructure build out people,the Nvidia's that are kind of
currently the poster child. All right, well, let's see if we
can wrap up and get through the Fed in the next, you know, 7-8
minutes or so. So the Fed earlier this week cut
interest rates very much as expected.
(49:46):
The federal funds right now at 33/4 to 4%.
But Powell warned strongly that another cut in December is not
guaranteed. Markets had priced again.
The cut was expected, but markets were looking for a 90%
chance of another cut following it.
That decreased to around now just a 60% probability.
(50:07):
So, yeah, maybe I know we talkedabout this at depth about the
balance sheet and there's a few bits there maybe to update on.
But some of the language, What do we hear here from the Fed?
Yeah. I mean, all the balance sheet
stuff, obviously the rate change.
So they cut, you know, that thatthat was all expected stuff
basically. So really the key take away
(50:28):
here, here are some of the wordsused by Powell regarding that
December cut probability. And he said it's far from
assured given for two reasons really a given strongly
differing views on the committee.
So again, we had two dissenters,right?
(50:50):
So they cut rates by 25 basis points.
They had two dissenters, two people disagreed in both
directions. So you had one member saying no
cut. Basically.
They're worried about inflation,which is ticking up.
They're worried about the fact the government's shut.
So we're not getting any up to date data flow.
OK. That's what they're concerned
(51:10):
about. He then got Trump's, what's his
name? I've forgotten his name now.
Mirren, is it Trump's guy in hisback pocket?
He wanted A50 basis point cut, right?
So you've got those two dissenters.
So Powell's saying one of the reasons why it's not really
certain yet what we're going to do is because, look, this
committee's really split #2 use a really good analogy, which I
think's, you know, makes a lot of sense.
(51:32):
He said if you're driving in thefog, you slow down, meaning,
well, the government's shut. We're not getting any up to date
data flow on the labor market, on inflation.
Without visibility, how can we make decisions?
And so that's his argument. And so he's saying markets, you
(51:53):
know this 90% probability thing,you've got to back off that.
We're nowhere near that certain to be cutting.
He's not saying they're not going to cut.
He's just saying markets, you'vegot to rein it in a little bit.
It's not as clear cut as your pricing.
So it went from a 90% chance of a December cut.
I think we're down to a 60% chance now, last measure.
(52:16):
So that that's the main take away from from the whole
meeting. So at the moment then, it's
awaiting updates. What from Capitol Hill?
What how's that going to play out?
They need the data points to be more informed.
Yeah. And that's kind of playing here
at the moment. Well, you've already got most
(52:37):
people fully expecting this government shutdown to be the
longest ever. Like, you did ever hear anything
about it, do you? I mean, I mean, all right, I
know it's earnings season. I know Trump's talking to Z, You
know, I know there's big stuff going on, but you'd have thought
you'd be hearing something aboutnegotiations going on behind the
(52:58):
scenes to get this thing resolved.
But this just seems to be radio.Silence.
The fact that you're not is exactly why I think you're
right. There's going to be a record
shutdown because the negotiations only happen when
your feet, your toes are dangling on the edge of the
Cliff. And we haven't got to that point
anywhere near that point yet. So no, there's no need to even
converse with the other side of the table at this point.
(53:20):
Not until there's leverage enough that there's the threat
of something more material. So.
So pallet pals, to be fair, I kind of agree with him, right?
It's only because inflation has been ticking up.
So if you're just going to extrapolate trends, whilst we're
blind and we don't have any moredata, let's just extrapolate
(53:43):
what was going on before, which was a softening of the labor
market that was going down and an uptick in inflation that was
going up. And the problem is you don't
want to be cutting rates if inflation's trending up.
You do want to cut rates if the labor market is trending down.
So that's their key problem, right?
And whilst you're blind, yeah, Imean, you just slow down a bit,
(54:06):
don't you? It's great.
Great analogy. Yeah.
That's the headline for the showright there.
All right, good stuff. So, as ever, if you've made it
through to the end, thank you somuch for listening.
Hope you found that useful. I know lots of students I met
this week are deep in interviewsand things like that, so
(54:27):
hopefully this is useful. Wishing you all the best and
we'll see you next week. Have a great weekend.
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