00:00Jeffrey's equity research analyst Brent Thill. He has a buy rating on Alphabet. And Brent what do you make of
00:07this latest raise. I mean I thought 75 billion dollars was a stretch for SpaceX. But this seems like pretty
00:14easy a pretty easy move from Google.
00:18Yeah I mean we're going to spend 1.2 trillion dollars as an industry next year on AI build out.
00:24So 80 billion is kind of a rounding error. When you think about it these numbers are huge. But Google
00:30is in such a great spot and they're leading this charge with an integrated stack of their own frontier model.
00:37Their hardware this the semi infrastructure and they have more data than anyone in the world which you need for
00:44AI.
00:44So when you go back to ultimately what's happening and why they're doing this they are in such a leadership
00:51position with Gemini. And you have OpenAI and Anthropic confidentially filed to go public. It is literally three vendors at
01:02the top of the leaderboard. If this is a PGA tournament and these guys right now are Scotty Shuffler. They
01:08are so far ahead of everyone else. I think what they're saying is look we need to get ahead of
01:14this.
01:14And we need to get ahead of what is about to happen. Especially with SpaceX and Anthropic OpenAI about to
01:21go public. I think it's I think it's a good move. I think it's a move that they're trying to
01:28get in front of what is about to hit and ultimately get the right funding.
01:32And I think that our due diligence suggests they're in a great fundamental position. They're not doing this from a
01:38position of weakness. They're doing this from a position of massive strength.
01:42And just recently they've launched a new solution called Google anti-gravity which lets developers build applications really fast. And
01:53this is the potential to have a breakout hit.
01:55So they just you know they have a collection of things going really well. And I think ultimately you know
02:02get in front of what is about to hit. And we know we're going to go from 700 billion to
02:071.2 trillion to spend.
02:09The AI investment cycle is still really early. We're not in a bubble yet because we haven't been able to
02:16fully roll out these data centers and get the services up.
02:19And so I think again it's a it's a good move on tactically for them to make this make this
02:26transition.
02:27Brent can I just clarify then is it a race for capital. For example if Alphabet tried to do this
02:34after we got these mega IPOs would they struggle to get that fundraising done to get the equity sale done.
02:42Perhaps I mean I think ultimately a lot of our clients are asking you know what do I sell to
02:47get ready for SpaceX Anthropic.
02:49I mean we're talking about you know when you think about the proposed size of these transactions. I mean you
02:57know it's trillion.
02:58So ultimately what do I what do I bring down to make room for. And so I think there's going
03:03to be a transition.
03:04So you know my my independent advice is if anyone was looking at the public markets right now you'd want
03:11to do it now ahead of this or just wait.
03:13Because there are you know three giant weight turbulences that are about to go through the air.
03:19And so you know clear clear get it get it done now versus versus what's happening.
03:24I don't I think Google could come to the market anytime honestly given their strength and their size their cash
03:30flow.
03:30I mean remember they have 126 billion of cash. They've got massive cash flow. So I don't think that this
03:37is an immediate need.
03:38And they're they're you know they've got they've got a bad balance sheet. That's not that's not what's happening.
03:43Brent you know on the one hand these PE ratios are not shocking right.
03:51I mean wherever you look you see the E rising so that the P can barely catch up with it.
03:59Google is trading at only 28 times forward earnings which isn't a crazy like dot com number.
04:04On the other hand there's just it seems like a sea of cash going into every asset in these markets
04:11whether it's fixed income or equities
04:16or hedge funds private assets like there's so much money. Where is that all coming from.
04:25There's a lot of money that's going into this and I think it's being funded by a whole a whole
04:30group of of companies.
04:32Everyone thinks it's super narrow but it's actually a pretty pretty widespread group of capital.
04:38Ultimately I think that the question is is this capital going to pay off in an ROI.
04:43And I think it's too early to make the call long term. But tactically we're seeing a big ROI on
04:50on these on this investment.
04:52The capital is is freely available. And I think again we've seen this across the board.
04:58You know when the CEO of SoftBank says this is 50 times larger than the Internet.
05:03This in my opinion will will will will create capital from globally to chase this.
05:09Remember every board globally is talking about AI. This isn't a bunch of Silicon Valley companies here in San Francisco
05:14talking about AI.
05:16These are global companies boardrooms and they never ever talked about Bitcoin Web 3 client server to cloud.
05:24They never talked about any of the other tectonic shifts ever in the boardroom.
05:27OK. Every board is talking about this globally. So the money is coming globally and it's coming from every industry
05:32from health care to aviation to financial services.
05:36And I think the pushback now is OK. Well we're going to we're going to spend 1.2 trillion in
05:42the next or in the next year on CapEx.
05:45Where's the ROI. And you're going to have to wait for that ROI.
05:48One aspect of the ROI because there's been recent stories.
05:51There's one from Axios last week that an unnamed company accidentally spent half of a billion dollars in a single
05:58month on I guess you know oops token maxing.
06:01I didn't set any limits on Claude and how much my employees could use apparently mythos according to the to
06:06the information is incredibly expensive to for now anthropic.
06:11The other LMS are subsidizing a lot of it. Once that stops are we going to see a lot of
06:15business models really pressured and just how expensive it is to run these models.
06:21Yeah. I mean I think you know our spend went from a few thousand to hundreds of the thousands. So
06:26you know when you look at I think we're all going through this.
06:29But ultimately what's happening is if you get the ROI you're you're you're you're taking money out of your IT
06:34budget in other places like services.
06:36Remember services a two trillion dollar industry. You think about employees every company in tech is slowing their headcount if
06:43not reducing their headcount.
06:45So ultimately this is coming out of human capital at some point and this will slow job growth and potentially
06:53cut it.
06:54And we're starting to see signals of this. It's not a I don't think it's as severe as what the
06:58CEO CEO's opening Ionthropic have said.
07:01But I think we're seeing the money coming from other places other than just the IT budget.
07:06Some have been incremental dollars given to the by the board from other areas. Some I think we're going to
07:12see in other areas.
07:14And ultimately I think we are going to see a job slowdown and potentially cuts happening and those jobs will
07:20be repurposed somewhere else.
07:23So that's happening right now.
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