00:00But we have to start with the CapEx guide. Again, Google, the parents saying that it'll spend $175 billion to $185 billion this year. That has been the estimate of $119.5 billion. Sheriff's throwing a little bit of a tantrum. What do you make of that guide?
00:18I think, you know, any time that you spend with what Alphabet's doing here, it's a little less constructive than Meta that have kind of pre-warned for two quarters, you know, leading into it. But having said that, it's front-footed spend. You know, they're doing very well in search. You talked a bit about AI overview. I mean, they're growing the search business 17% in the quarter.
00:44The cloud business was expected to grow 38% and grow 48%. It's a business that's going to be approaching levels of $100 billion of revenue in 2026. And so I think, you know, there's a digestion period around this spend and the implications in terms of, you know, free cash flow and a DCF. But I think this is very positive for the AI ecosystem overall that this cycle is very much still intact.
01:11Well, when it comes to search, when it comes to advertising, are you able to draw a direct line between the spend that they're putting up with these CapEx numbers and some of the results that we're seeing in these businesses?
01:23So you have two aspects of it. You have the infrastructure spend related to Google Cloud and the acceleration that that business is experiencing.
01:33And then you have the cost of delivering AI search throughout the business as well.
01:39And both are significant costs. The computational costs related to AI search are higher than legacy search.
01:45Although those costs are coming down, they're still higher.
01:47The monetization of AI search is still lower than traditional search, but the company has said historically that they think ultimately it will be higher.
01:55So I think there's still benefits from monetization in search.
01:59And I think that it's still very early days in terms of this improvement and growth in the Google Cloud business, which very much justifies the investment.
02:08You have to think about this as a cycle that's almost five to 10 years in building relating to the CapEx spend.
02:14And the revenue streams are just starting to flow through.
02:17So, again, I'd say it's a little bit of a net negative because the market has to process the implications of the incremental spend.
02:25But it's a very positive implication for Google as a company and I think for the broader ecosystem.
02:31I've referenced a few of the infrastructure names trading up after hours as well.
02:35So this gets to the idea, though, too.
02:36I mean, what do you actually want to hear the executives sort of articulate on the conference call longer term?
02:43And I'm not just talking about hard number forecasts, but really about the vision of what they want out of this.
02:48So I think you want to hear that what you're seeing in the reported results, which is that consumers are gravitating to where the investment is going.
02:57So on the search side, you're seeing usage of the AI tools, and that's not only true for Google, but it's true across the entire, I say, AI complex from a consumer standpoint.
03:09And so that's happening, and the company needs to be spending behind that to be able to provide those services that consumers are demanding.
03:17On the cloud side, you can see it in Microsoft's results, even though they weren't well-received, that business is growing 40%.
03:24This business is growing almost 50%.
03:26Tomorrow night, Amazon is going to report a business that's on a run rate to do $150 billion of revenue that's growing up near the mid-20% range again.
03:35And so I think that the spend and what you're going to hear is that this spend is very much justified.
03:43And I think that there are data points, at least existing today, that suggest that's very much the case today.
03:50Now, the longevity of this cycle will remain debated in terms of how long that revenue acceleration for these companies lasts.
03:58But I think the data points most recently for all the hyperscalers are very positive.
04:05It's funny.
04:06You mentioned Amazon, and we're going to get their results in about 24 hours.
04:10I am curious, specifically on the AI front and everything that's been going on with Anthropic, I mean, what is their position right now in the AI space?
04:18How do you see it?
04:20I mean, AWS is still the largest provider of cloud services.
04:25You know, it's going to be north of $150 billion in revenue this year.
04:29Given its size and given the fact that it's been a little later to adapt to some of these AI features and functionality for customers, the growth rate has lagged.
04:41But they just launched Project Rainier, which is almost exclusively utilized by Anthropic.
04:46And that's going to drive pretty meaningful acceleration in that business in 2026.
04:51So I'd say AWS has been viewed as a laggard, but that narrative is in the process of shifting throughout this year.
05:00Having said that, I do think Azure and Google Cloud will continue to grow at very high rates as well.
05:06All right.
05:07Sorry.
05:08One more, Scott.
05:08Before we let you go, Apple in January announced that it had chosen Gemini as basically the AI technology that's going to help revamp Siri,
05:17which was notable at the time because they could have gone with one of these AI startups if we're still calling them startups.
05:23So this earnings call is going to be really the first time we're going to hear Alphabet's leadership address that tie up.
05:30And I'm curious, you know, first of all, what you make of that.
05:32And when it comes to specifics there on that partnership, what would you like to hear?
05:38They have a very strong relationship historically with Google search integration into Apple.
05:45And, you know, I think whatever this AI cycle is going to be in terms of consumer engagement, it's likely to happen on an Apple device.
05:54And so the relationship with Gemini and the features and functionality that Apple can integrate into its platform because of that relationship
06:02just furthers an already strong relationship going back over many years that it's had with the search business.
06:09And so to hear Google talk about their product portfolio, whether it's the relationship with Apple or independent of that,
06:15I think is what you want to hear from the company tonight.
06:18And it's how good their product is and how much better that it's getting relative to the legacy Blue Link search.
06:26And I think we're starting to really start to see the benefits of that.
06:30And what's interesting is, you know, in this past few weeks, you've seen the infrastructure companies go down because there's questions about AI.
06:38And at the same time, all the software companies are going down because the AI is going to destroy their business model.
06:42So it seems like it can't be both at the same time.
06:46And I think now we're going to start to see that sorted out with results like those from Alphabet tonight and what we see from Amazon tomorrow.
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