'Buy the Pull Back,' Says Jefferies' Thill

Bloomberg

Watch 'Buy the Pull Back,' Says Jefferies' Thill - Bloomberg on Dailymotion

Transcript

00:00Let's start with Meta. That's kind of the equation, right? Okay, capital expenditures

00:04will be higher next year than they were this year. Then what? Give us more. Give us some

00:08longer term outlook. There just wasn't a formal guidance. Is that what spooked the market?

00:15Yeah, Meta was just in a period of being really comfortable. Zuck had been very comfortable. The

00:21company had executed. They had invested and they were harvesting those investments. And now they're

00:27going back into invest mode. So I think at the beginning of the year, advertisers were saying

00:33that Meta was more sheltered because they didn't know what Google was going to do with AI.

00:38And we didn't know what was going to happen to TikTok. And then halfway through the year,

00:43everyone realized, hey, Google's got their act together on AI. And we know that TikTok now has

00:49more of a foundation. So I think, as I call it, there's less of a tailwind for Meta. It's not a

00:56headwind, but it's less of a tailwind that they had at the beginning of the year when you talk to

01:01advertisers. And I think what Zuck said last night on the call was the investments in AI are paying off

01:07and they just need more of them because everything they built, they felt like they had overbuilt and

01:13they sold out of what they built. So they have to build more. And so, yeah, it doesn't have anything

01:19to do with the fundamental position. It's are we going to see margin compression? And then when does

01:26that return come back? But we already know that they have a return. We saw with Microsoft, they've

01:31given us margin expansion, even in the face of AI. So this whole concept that AI doesn't pay off is

01:37silly. But the stock move is so big that we question. Yes, we see Zuck on the call saying,

01:46look, I'm worried about underinvesting. We hear once again from Susan Lee that they're going to

01:50make notable investments. Everyone knew CapEx is going to go up and to the right. Why is there

01:55such an air pocket on this day, do you think? Well, I think the outperformance of Google, I think

02:02you have money chasing. We're in a momentum market. I mean, look at yesterday before any earnings.

02:07Everything in applications went down, and AI went straight up in infrastructure. So if you have

02:13CapEx going this high, the pushback is why do I invest in internet and software right now? I should

02:18be invested in energy and land and all the enabling infrastructure. I mean, infrastructure goes up every

02:24day. Look at all the energy names. They're all ripping. And so I think there's a common pattern with

02:29tech investors right now. They're just broader investors are moving their investments to other

02:34categories. And then they're chasing momentum. It's just the market's so narrow. And you're seeing

02:41this. So there was nothing that was fundamentally offline. They're making the investment. They've

02:48done this before. How many times have we seen that to do this? And then a return, the stock goes

02:52higher. They're going to do $30 running power. Put a 30 multiple on it. You're $900 on the stock.

02:57It's a buy on the pullback. Brent, the name with momentum is Alphabet and Google, right? They gave

03:05us two data points. Capital expenditures, $91 billion to $93 billion. But revenue from products

03:12that are built on Google's generative AI models grew more than 200% from a year earlier. That second

03:19part, your reaction to it? I mean, AI is working. And I think the fear that investors have had is

03:28what happens when I go from a world of search to AI and think Google is showing they can do the

03:34high wire act very well between search to AI. Everyone thought search would implode. In the last

03:40two quarters, they beat the search number. This quarter, they accelerated their search number.

03:44So what they're saying is that search can be anywhere. It can be inside AI. It could be in

03:49their own search engine. It could be at YouTube. It could be across different properties.

03:55And I think what Google is demonstrating, and we've said this kind of for a while,

03:59they have better AI underneath the hood than they're articulating. And it's now coming out.

04:05You can see it. We said, you know, they kind of pull up to the AI race, you know, on a Toyota Camry

04:11body, but they have the biggest engine. And they pop the hood, and everyone's like, whoa,

04:16this is incredible. And so I think everyone is realizing when you look at Gemini, I mean,

04:21we ran bench tests. It's almost equivalent to ChetGPT. And then you look at the breadth

04:28of their offering. And again, remember, they own the world's internet data. So you need data users and

04:34capital for AI to work. And they have all of those, almost better than Meta, Microsoft, many of the

04:40others. They have more data on anything in the world than anyone. So I think they're proving that

04:48this engine's working. The body didn't look great. You know, they're upgrading the body,

04:53but the engine is really, really good.

04:55But what's so interesting is clearly Microsoft is still working. When you're looking at Azure growth

05:00of 39%, that was better than the market had anticipated. Sure, it might not be much of a growth

05:04uplift. But what was it? What was the fly in the ointment for Microsoft, where Amy Hood again is

05:10saying, my issue is supply, not demand? I don't understand the market, because they just put up

05:16over 50% RPO or backlog growth and 110, 111% commercial bookings. Those numbers are insane. And

05:23that didn't even include OpenAI's $250 billion incremental dollars. So I think the market's got

05:29this wrong, honestly, that you got to look at the backlog. The backlog is the leaning indicator of

05:34health. The reported Azure number does not matter. When you're putting those backlog numbers up,

05:41that tells you they're capacity constrained. You can't book that kind of revenue and not take it

05:47to Azure. And the differential is they just can't get the capacity up right now. But their customers want

05:57to spend and their customers are spending and they know what Microsoft has. So I think this is a common

06:04pattern where you're seeing massive backlog growth, commitments to AI from their customers. But Microsoft

06:11can't literally physically provision it fast enough. And when we talk to Microsoft offline,

06:20like the Azure number would be way higher if we didn't have the capacity constraint. So this is not a

06:25demand issue. This isn't a competitive issue. This is an issue that the industry is facing right now

06:32across the board is they can't get enough of it to their customers. That number would have been way

06:37higher because you can't describe the math of the backlog being so high and Azure where it's at.

06:43So I think, again, we look at it. It's important. Wall Street cares. I think Wall Street should care

06:49more about backlog and bookings. This is, again, what all Oracle trades on. They don't care about

06:56revenue. Why does everyone just care about revenue now? So I think, again, I think the street's got it wrong.

Category

Transcript

Be the first to comment

Recommended