00:00Angelo Zeno of CFRA with a strong buy rating on Microsoft and Meta and a buy on Alphabet,
00:05writing, companies have the ability to demonstrate faster than anticipated growth.
00:10Hyperscalers are likely to sustain, not increase, CapEx budgets.
00:14Angelo joins us now for more.
00:16Angelo, that last line's interesting.
00:18Are we entering a new phase for CapEx?
00:21Yeah, so John, I don't know if we're entering a new phase, but I will say this.
00:25We just saw these companies really kind of blow out their CapEx numbers.
00:30Back when they reported Q4 results, so that was just two months ago, right?
00:35And when you kind of look ahead just two months later, I don't think much has changed.
00:40You look at where the street is at in terms of the CapEx numbers relative to where the guidance was.
00:45I think most, you know, sell-side analysts are towards the high end of kind of the range that was
00:50provided from a lot of these hyperscalers.
00:52So when you just kind of look at, you know, what these companies are at least going to do in
00:57Q1,
00:57I don't see any sort of major tick up in terms of CapEx budgets.
01:02That could change as we go into the second half of this year and depending on what that trajectory looks
01:06like.
01:07But at least as far as Q1 is concerned, I wouldn't expect any sort of major change to CapEx budgets.
01:13Angelo, we're all tracking that story from the Wall Street Journal this week,
01:16indicating that OpenAI was starting to struggle to meet its own sales targets.
01:20It raises some questions about their own spending commitments over the next year or so into 2030.
01:26How do you think the other big spenders would respond to a development like that one?
01:31Yeah, I mean, I thought that was an interesting article, to be honest with you.
01:35You know, I thought there were a couple of interesting takeaways, but it was very vague in nature.
01:40But when I think about just OpenAI, I think, you know, that was somewhat – the writing was on the
01:46wall to an extent here
01:47over the last couple of weeks and months, just given some of the news flow that we had seen.
01:53But, you know, they had already reduced their CapEx budget from $1.3 trillion to $600 billion in terms of
02:00commitments.
02:01$600 billion still seems too high.
02:03But at the end of the day, I mean, listen, as long as the AI narrative remains intact,
02:08you continue to see strong adoption from the enterprise space.
02:11We'll see, actually, I think bookings growth in terms of the cloud guys reporting tonight
02:16is going to be really important in what that non-AI, OpenAI contribution looks like,
02:22especially for a company like Microsoft, which hinted towards 45% of OpenAI exposure last quarter.
02:28We kind of want to see what that non-OpenAI growth looks like.
02:32And I think it's going to be really strong.
02:34And I think these companies are going to be able to diversify away from OpenAI over the next couple of
02:39quarters.
02:39So I think that's a positive.
02:41But as far as OpenAI risk, you know, inherently there, there's clearly going to be risk if they can't deliver
02:48and accelerate here,
02:49especially ahead of a monster IPO later this year.
Comments