00:00Angelo Zeno of CFRA writing quote,
00:16If that's the case, Angelo, why didn't Mark make the case better?
00:20It seems that investors just aren't buying it.
00:22The stock is down nearly 9% of the pre-market.
00:27Yeah, so thanks for having me, Vanya.
00:29And I would say that's been the issue here with Zuckerberg, I'd say, the last two quarters.
00:34You kind of look at Q1 earnings season, and similar to what we saw last night
00:39is the fact that he just didn't tell the story good enough.
00:42I mean, when you kind of look at the initial reaction to the stock, it did sell off,
00:46largely because of the light Q3 guidance or fairly conservative Q3 guidance.
00:51But when you look at the top line, it is still growing at a pretty good pace,
00:55just decelerating on tougher comps.
00:57But as you kind of look here over the next couple of quarters,
01:00I think really what the market wanted to hear was a little bit more clarity
01:04and potentially that compute initiative that they've thrown out there.
01:07They've got a lot of compute capacity that they've obviously bought
01:10because of the higher capex spending.
01:13And in this environment, that's not necessarily a bad thing
01:16because there's a lot of value in that compute.
01:19The problem is, again, he's not telling the story
01:21and putting numbers around what the revenue opportunity is around that.
01:26And in fact, when you kind of look at the messaging, it was very cloudy in nature.
01:31I think this is one of those things where you have to wait a couple of more quarters
01:34and give Meta the benefit of the doubt.
01:37But in an environment where there's just a lot of uncertainty out there,
01:41I think at this point investors are just looking elsewhere.
01:44Yeah, I mean, on compute, it's clear Meta is receiving offers at a premium,
01:49but there's just not enough detail around it.
01:51Is it because Meta just doesn't know yet?
01:53And like the rest of us, they're sort of waiting to see what happens in this AI environment.
01:59Yeah, I think they just don't know yet.
02:02I think they see two great opportunities, one being,
02:04hey, listen, we can instantly generate revenue similar to what the cloud players are doing right now.
02:10And that is, hey, listen, we're buying the compute capacity and we'll sell it off to those that need it
02:16like an anthropic.
02:17But more importantly, for the longer term health of this company,
02:21if you can find ways to build intelligence on top of that compute capacity,
02:26there's more sustained higher margin, higher value type of revenue around it.
02:32And I think that's really what Zuckerberg would ideally like to use and maximize that compute capacity for.
02:38Again, from an investment perspective, it's going to take time to realize those benefits from a revenue perspective over the
02:47long term.
02:47And I think that's right now what the street is struggling with and why you've kind of seen the mixed
02:53messaging from Zuckerberg.
02:55Let's move to Microsoft, which got rewarded for once, right, Angelo?
02:59Co-pilot growth, also much better growth in Azure.
03:03Is this counteracting the narrative that perhaps, you know, there won't be as much uptake from businesses and from individuals
03:11on AI?
03:12Is this sort of telling the world, look, it can be monetized?
03:17Yeah, I think so.
03:18I mean, I think this was as good a quarter as you probably could have gotten out of Microsoft, right?
03:23I mean, you got the Azure numbers, great print, 43% and acceleration to the second half of the year,
03:2945% for the September quarter.
03:31Everybody wants to see that acceleration in cloud.
03:34You've seen it out of Alphabet.
03:35You're now seeing it from Microsoft and you're probably going to see it tonight from Amazon in our view.
03:41And that does kind of tell you, hey, listen, enterprises are spending.
03:45They need a lot more compute capacity out there.
03:48If that capacity is being made available by Microsoft and others, then the enterprise base is going to spend on
03:54that capacity.
03:55And then when you kind of look at, you know, their productivity tools out there, specifically Co-pilot, among other
04:01offerings out there, there was some great numbers tied to that.
04:05And again, something that the street wanted to see.
04:07And again, it shows that the enterprise is willing to spend for these greater AI capabilities.
04:12So when we kind of think about Microsoft here, and I think the balance that Microsoft is striking here between
04:18the CapEx spend, making sure they're free cash flow positive, is something that investors like at this point in time.
04:24They're almost kind of the grownups in the room relative to some of the others out there.
04:28Are these customers pretty sticky, Angelo?
04:30And does Microsoft have pricing power?
04:32Is there any chance that, you know, a China offering could come and take some of the territory away?
04:41I mean, they do, they have some very, I mean, they've got significant pricing power.
04:45They're actually hiking prices in terms of their, you know, enterprise offerings.
04:49So they're better in fitting from a tailwind on that side of things.
04:52In terms of some of the models that they're rolling out here, we haven't seen much on that side of
04:57things.
04:57Obviously, they just launched seven models.
05:00That's something that where we expect them to kind of penetrate more and leverage more of their internal, you know,
05:05products to those models.
05:08And I think that you'll get the benefits on cost from that perspective as well.
05:11But as far as kind of, you know, the competitive pressures out there from China is concerned, I think that's
05:17something that, you know, the entire ecosystem is going to have to deal with.
05:22And over time, you know, from at least from a large language model perspective, that is a good thing, I'd
05:28say.
05:28But Microsoft, I think, is, you know, they're more of a company at this point in time.
05:32You know, they're going to continue to benefit from the volume-based side of things on Azure while they'll continue
05:39to do what they do on the enterprise offerings.
05:43And given that they are kind of this enterprise king, more penetrated than just about anybody on the enterprise side,
05:48they clearly have a competitive advantage from their existing, you know, massive install base.
05:53That's it.
Comments