Tech Earnings Quadkill, Red Button vs Blue Button | Diet TBPN

What a day in financial markets and technology markets. There is a ton of news today. Gavin summed it up well. Uh huge day tomorrow. He's posting this yesterday. 10 a.m. Canada interest rate decision. 2 p.m. This is Eastern time. USA interest rate decision that is in Fed held rates constant. So sort of a nothing burger I guess. Not the best news. I think some people were hoping for a cut, but everyone sort of expected this. It met it met expectations, but the news is that just five minutes ago, the Federal Reserve has kept interest rates on hold at a range of 3.5 to 3.75% at Wednesday's meeting. And Jerome Powell is giving a speech in just 30 minutes at 2:30 Eastern. Then at 4 p.m., Google earnings, Amazon earnings, Meta earnings, and Microsoft earnings. Uh, it is a mass. >> No big deal. No big deal. They only represent just under 20% of the total market cap of the S&P 500. >> Let's go. >> All reporting within >> but people are optimistic. Semi- analysis put out a note this morning according to YC Yield Chad uh expecting hyperscaler capex to be revised upwards and beat street expectations as hyperscaler cloud revenue is accelerating and they are seeing positive ROI on cloud investments. I can sort of go through my earnings preview. It was a tech earnings quad kill today. Uh and the big question is just how is the AI buildout going? Obviously the capex numbers were huge. We s the first time ever we've seen a $200 billion number from Amazon uh last quarter. Uh but everyone's up in the is there even a word for triple? It's like what 11 digits or something like that? 100 billions. Everyone's everyone's spending at least 100 billion these days at least if you're in the mag seven. But uh financial performance has actually been strong even in sort of legacy areas such as search Google search is growing e-commerce sales Amazon core business is growing uh enterprise software seats Microsoft 365 we're going to have more news on all of that even though all of those businesses they're working they're chugging along the big question is around durable revenue tied to AI infrastructure because you have this matching problem you spend a bunch of money there's depreciation when do you actually get the cash flow back. How durable is this revenue? What are the moes around this revenue? What do growth rates and margins look like in this new era of something that looks maybe a little bit more like a railroad business, an oil business, as opposed to something um like you build a website, people just show up and it's 80% margin, which was the dream of the previous software era. We're going into an entirely different era, but it is very exciting and we're getting a lot of data today. So uh everyone has seen cash flow from these hyperscalers to Nvidia to power companies to data center builders. Um but everyone's wondering what's the exact conversion cycle to higher revenues and higher profits. What's the what's the pathway there? Because you don't want to just be drawing down on cash endlessly. Eventually you stop making money entirely. So let's start with Google. Google has the most fully integrated AI stack arguably. They have consumer distribution. They got model training uh with Deep Mind. They have custom chips with the TPU and a bunch of product services where they can stuff AI features. >> Google Workspace, >> Google Workspace, search, YouTube, Android, cloud, they can deploy solutions all over the place. And so the flywheel should be spinning very very quickly. Uh the key question that investors are asking is does AI change the unit economics of search too quickly? Does AI do LLMs, do uh AI search overviews, Gemini generally, are they able to monetize those results fast enough to offset any potential declines in search ad revenue? Uh and so people will be looking for how is search monetizing? How is how are the new AI, you know, disruptors uh monetizing? And so uh but there are tons of places to pick up growth. Even if growth does slow down in the core search business, uh tons of opportunity in cloud. Uh but the question again is uh AI overviews in Gemini. Are they expanding search usage? Are they increasing ad ROI or are they compressing the model the the financial model? Microsoft is also coming off a strong quarter. Honestly, everyone's coming off strong quarters. Everyone's doing very well. Revenue is up 17% at Microsoft with cloud, which includes Azure, M365, some LinkedIn stuff. There's a it's a big bucket. cloud Microsoft cloud's growing at 26% but if you dive in and you double click on Azure Azure is growing at 39% and of course Azure is a bigger lever on capex uh which is run rating around 150 billion not bad uh the biggest number in the Microsoft earnings is RPO remaining performance obligations last quarter it was listed at 625 billion up 110% that was the eyepopping number of the last earnings about 45% of that is coming from OpenAI, but they have lots of other partners that have signed on for really long compute contracts and that is starting to show up in the financials saying, "Hey, we're spending all this capex, but we have this RPO and we have these deals signed where companies are, it's not just us that we're forecasting some really high growth here." The entire industry is forecasting high growth. And so we have done deals to justify the capex that we're spending right now even with depreciation which seems like a less of an issue than people thought it was since H100 still seemed to be monetizing just fine but we can go into that. So Microsoft has the cleanest read on enterprise AI monetization which I think is something people have been really looking for looking for numbers. They know that you know subscription LLM chat apps monetize at a decent rate that the margins at a lot of these companies are are okay. the token, the APIs are working, but what does it actually mean to deploy AI into the American economy, into everyday businesses, into large scale businesses? All of those businesses are on Microsoft overwhelmingly. And so there are a ton of data points that can help you understand how AI is flowing through the global economy, but also the American economy. So what are we talking about specifically? Azure growth, how much cloud hosting is going on, uh gross margins for Microsoft cloud, that's very important. Are you seeing cloud compression? Because if you go to your Microsoft cloud provider and you say, "Hey, I'm going to this Teams thing. I'm paying a lot of money for it. I actually vibe coded something. You got to give me a discount." That would show up in cloud margins. Will it show up? I don't think it will, but we'll see. I think it's going to be fine. Uh co-pilot adoption, uh, and our poop, how much are they actually rolling these out? Are they actually getting incremental spend? Are companies willing to send more of their hard-earned dollars to Microsoft for better AI services, better features, co-pilots? Then M365 seat growth. That's a really important one. Are people adding more seats? Are they hiring? Like we've seen some layoffs in big tech, but how is the overall economy doing? How many more seats are are being rolled out? Uh again with the question of like does your AI agent need a seat and so you have more seats or does your AI agent replace 20 seats and then you only have one seat and you have 20 agents that are all logging in through the same M365 seat. These are like more long-term questions but we're getting an early read today. GitHub co-pilot momentum. This will all paint a picture of what is happening with AI adoption in enterprises broadly. Interestingly co-pilots at Microsoft it hasn't been the most hyped product. GitHub copilot early very very early to the party huge run rate got you know rocketed up to 500 million ARR very very quickly but the the horse race has always been you know wind surf cognition and cursor and and codeex and claude code and like the battle has been the the the the startups for the most part Gemini's been in there uh GitHub co-pilot has felt like it hasn't been dominating the narrative but we're going to find out is it still growing growing because the market is really really big. It's possible that everything's growing even if there's you know a horse race back and forth between the the leading labs. There will be a bunch of other questions answered around you know how nuanced is the diffusion adoption question. So, Microsoft has an incredible go to market team, an incredible go to market motion, enterprise sales motion. And so, uh, is there an advantage that they have that they can press GitHub copilot even if it's not the sexiest product next to whatever's hot this week? Can they get that into teams, right? >> Same thing. Yeah. Yeah. Slack was the definitely like the hot one, the hyped one, and teams wound up doing very well. And so, we'll get us we'll get a stronger read on what's going on there. And then of course that M365 seat growth will tell us a lot about what does the future look like for seatbased enterprise software the SAS model broadly because if all of a sudden that's falling off a cliff well it probably doesn't look good for other seatbased SAS companies for Amazon everyone wants to see strong AWS acceleration to justify the mag 7 topping capex numbers they got it to 200 billion in capex in 2026 so expect a lot of focus on AWS revenue growth margins. Q4 was healthy though. Net sales up 14% for Amazon. AWS growing at 24%. The sneakily huge ads business over at Amazon grew 23% to 21.3 billion. They're almost making a hundred billion dollars a year just on ads. That's remarkable. And that's a lot of cash flow to fund capex and other, you know, AI initiatives. And so operating income overall was 25 billion for last quarter. Uh and they generated free cash flow of 11.2 billion. So still hu huge cash flows. They're obviously drawing down on those and that 11.2 billion number was down uh because of increased AI spending. So if AWS accelerates all the capex looks like buying scarce capacity ahead of demand like they will be GPU rich or just computer rich generally at a time when it's good to be GPU rich and comput rich and they will look like geniuses. So people are uh hoping for uh strong AWS acceleration. Consensus for AWS revenue is around 36.7 billion uh with growth in the mid 20% range, but the market's really hoping that it starts at the three. Everyone's hoping for 30% something like that at least this year at some point. You know, reaceleration would be a treat for the market. Uh lastly, Meta. Meta is in an interesting spot. Super clean Q4. nothing really to prove today. Despite all the FUD, all the fear, uncertainty and doubt around the talent wars, new team members, the new lab, this the sometimes clunky model releases, they didn't get behemoth out, what you know, different adoption of meta vibes, the video app, like there's been all these questions about the AI strategy. All of that needs to be put to the side in the face of just AI is already working for meta and their ads platform >> on reals. Yeah, they're it. I mean, they're they're they're absolutely crushing it. So, 3.58 billion DAUs, daily active users, and they grew the ad business a ton. And so, uh the revenue overall grew 24% to almost 60 billion last quarter. Uh ad impressions rose 18%, average price per ad rose 6%, family of apps operating income was 30.8 billion, which makes losing six billion at Reality Labs like quaint. It's just like who who cares? It's totally worth taking a side bet on the future of devices and maybe you get a platform out of that. Makes a ton of sense. And so uh capex was 72.2 billion last year. Uh the guide this year is somewhere between 115 135. I think we might see that tighten up today. Um uh because it's a little bit wider than some of the other hyperscalers that are targeting, but clearly uh a near doubling almost doubling of capex. What are you laughing about? There's one possibility where he goes, you know, he blows it out. >> 250. >> We can't We can't We can't count that. We can't count that out. They came out with a They came out with a solid They they came out with a solid model. Yeah. >> He's putting mirrors in space. He wants to be a player. >> Yeah. Yeah. Yeah. Yeah, I mean a lot of focus is on the the the new meta models, but uh all of that it just financially at least in the quarterly earnings like it will just take a backseat to uh what's going on with the AI in the ad placement ad monetization funnel because that's where Meta makes so much money. And so the question is how much more juice will AI bring to the ad business? expectations imply revenue growth of around 31%. Then the question is always the same. Is there enough incremental growth to justify the capex an AI advancement delivers better ad performance basically immediately? And this is the good news for meta. So improvements in AI move the needle at meta incredibly quickly. Like a new model can come out and there can be some breakthrough in like thinking, reasoning, coding agents. And if you're in the enterprise software world, it can take time to do a deal, roll it out to different developers, different organizations, change management, understand the the the the guard rails, the security, how does this actually flow through an enterprise to drive incremental demand. Uh not so at Meta. if there's a breakthrough and they have a model that is placing ads more effectively, they can quickly AB test that, run that across the entire uh family of apps and you don't even notice it as a consumer. You're just like, oh, like I was shopping for a car and I saw an ad for a car. I was shopping for a shirt and I saw an ad for the perfect shirt and the ads just got a little bit better and just a little bit better means like another $20 billion in profit. So, uh it can be uh so they just don't have a diffusion question. They don't they they don't have a diffusion problem. There's no, oh, we have this amazing model. If only we could get people that open Instagram to use it. Like there's nothing there because they use it when they scroll and they see an ad. And so that's an incredibly fortunate place to be in. So every company is trying to answer the same question. Uh can you turn AI capex into proprietary distribution, higher customer retention, measurable revenue growth before the depreciation catches up? It's the Super Bowl for big tech. So, get your popcorn ready. Everyone's uh everyone's excited. There are uh there are AI worries, AI jitters in the Wall Street Journal. AI worries have returned to Wall Street. Now come earnings. And so, everyone is going back and forth. Uh on the OpenAI news, shares of Oracle, Coree, and SoftBank uh slumped, but Cororeweave is up majorly today, 8.4%. Uh they they dropped at least 4% after hours yesterday, but then they're back up. that revived investors worries that technology giants massive investments in artificial intelligence won't produce the blockbuster profits many expect. The report was particularly jarring coming ahead of key earnings from major players Alphabet, Amazon, uh Microsoft, Meta, all scheduled to report Wednesday with Apple following on Thursday. The ice is thin, the leash is very tight, said Dan Morgan, portfolio analyst at Senovas Trust. any evidence uh that would come out that would add doubt about OpenAI, Anthropic, or any of these companies is obviously going to create a sell-off. Morgan said he hadn't adjusted his positions on Tuesday and didn't think investor concern was broad-based because companies including IBM, Texas Instruments, and Intel had reported strong earnings in recent days. Instead, Tuesday's losses centered on the companies with biggest stakes in OpenAI's business. OpenAI had forged close ties with these companies to secure funding and gain access to computing resources which are essential for training AI systems and providing answers to queries and executing user requests. And so uh Oracle and Core Weave we talked about fell. Um OpenAI has defended its financial footing and said its leaders are aligned on securing computing resources. The business is firing on all cylinders and the mood internally is incredibly positive. The company said in a response to the journal's article on Tuesday. Colin Tedard says, "My children might not eat tonight if this doesn't go well because he is excited for all four of these earnings on Robin Hood." And we have Vlad from Robin Hood coming on the show later today. >> Kramer says, "Intel is such a horse." >> I have no barecase. >> I have no barecase. >> And Intel is up another 10% today. >> Yeah, up 10% today. >> Wow. I mean, the >> 40% on the week so far. >> 40% on the week. Is that good? >> Wow. >> Based on everything you've seen so far in your six-month career, Tyler, is that good? >> That seems incredible. >> Looks pretty good to me so far. >> Yeah. I mean, there is a uh there's like the idea of a of a CPU shortage generally is just being digested by the market right now. I think uh it took I mean I remember Nat Friedman and Daniel Gross going through techy and talking about uh after chatbt saying like yeah Nvidia seems like it could be important like quadrupled in value. Uh and this this tends to happen as people digest the new reality of uh demand around certain pieces of the AI supply chain. >> And we have an interactive game set up is that >> we do. So, uh, there has been a viral, uh, I don't know what is it, a brain teaser, I would say. A poll, but it's more it's a thought experiment. It's a thought experiment. It's not It's not purely a poll. It's a >> It's a It's a brain teaser. >> It's a thought experiment. And did this has this existed before? Did this start with Did This Didn't start with Mr. Beast, right? >> No. So, started with Timb Yeah, Tim Urban. I I don't think Tim Urban like created this either, but I think his post was the one that first went like really big. Okay. But I I don't think this is new. I feel like I've heard about this before at some point. Yeah. But Tim Urban was the first one to make it like go viral this >> Yeah. >> cycle. >> So he got 24 million views on April 24th and then Mr. Beast uh came from behind four days later with 10 million views on a very similar question. Let's start with the original Tim Urban question and we will ask everyone in the chat to participate and vote for what you would pick in this thought experiment. So here is the question posed by Tim Urban of Wait but why? Everyone in the world has to take a private vote by pressing a red button or a blue button. If more than 50% press the blue button, everyone survives. If more than 50% of people press the blue button, everyone survives. If less than 50% of people press the blue button, only the people who press the red button survived. Which button would you press? What are you what are you pressing? >> So, so the sort of like normie answer is you immediately just go blue because it feels like a lot of people would go blue. But like the safe answer is you just if you if you're hyperrational, you'd be like obviously you hit red because if everyone's just super rational, everyone hits red and then everyone's all good. You don't hit over 50%. Right. >> Yes. >> Yeah. Because like no matter what. So if I press red, no matter what anyone else picks, like I survive, right? >> Yes. But there is a risk. >> But but like you know if you want everyone to survive, then you need 100% of people to pick red, >> right? >> Yes. Yes. >> But okay. So, okay. So, originally I was blue. I think I was like complete normie, right? And then I went to Jord's take. Yes. I was like, "Wait, no, that doesn't make sense." Like, >> even though I mean, we'll see what happened in the poll, right? But but you know, I was like, "Okay, if I'm thinking about this super rationally, I should just pick red, right? Then I save myself 100% of the time." Yeah. >> But then like if there's some people that pick blue, then like they're going to die for sure. Yeah. >> Like I'm basically voting against them. >> Yeah. you're you're sort of >> like, you know, if you want everyone to live, if you want everyone to live and you're and you're going for red, you need 100% of people. But if you're going for blue and you want everyone to live, you only need 51% of people, right? So, you need to convince way less people. >> Quickly, I got to jump in. Yeah. >> Let's tell the chat how to vote. >> Yeah. So, one is for red, >> one is for intern. And two is for blue. >> Two is for blue. So, type a single character. Just a one if you want to vote for red and just a two if you want to vote for blue. Oh, do we have this up? >> We are tilted towards red. This is crazy. This is not what happened with Tim Urban's and with uh uh Mr. Beast. Uh because Tim Urban 58% said blue. Blue won. No one died. And with Mr. Beasts uh 55.7% went blue. No one died. It's not looking good for the blue team here. 33% of the chat is is going to get cooked right now. >> It's possible a nation state is voting. >> Yes, that would be very very high risk. Mike Salana says, "For what it's worth, uh, and this is embarrassing, but I'm going to admit it. My instinct was blue, and I pressed blue. Then I thought about it for a moment, and the answer was clearly red. I can't make a rational case for blue, but understand where blues are coming from. Parenthesis, they are wrong. So, your final answer, you you you flipped blue. >> You're still going blue >> because I I think I you have to assume that there's going to be some variance like some there's some people would just pick the wrong one. >> Yes. And so >> the the correct one is red. If everyone is, you know, 100% logical, everyone should be picking red. >> Uh yes. If if 100% of people are rational, they will all pick red and no one will die. >> Correct. Clearly, some people are not going to do that. If 90% of people are doing it, >> 90% of people are rational. Yes. Then everyone should just be picking blue because you want everyone to live. >> Yes. Yes. And then and then the people that make the mistake, they go for the red. They are saved anyway. But uh there are there are some folks who are uh who are sharing different uh different illustrations. Uh Kremx has one here. He says, "If this was how the buttons looked, what portion of humanity would would press blue?" And he has two images pulled up. One is the red button, nothing happens. And the other one is the ultimate death gamble. Press blue. You enter the ultimate death gamble. You and everyone who presses this button dies unless more than 50% of people choose to press this button. And so that makes it pretty clear. I think this is the mic salad position as well. uh you gotta press red in this case because nothing happens. Um but uh but that's not but that's not entirely true. And so people have sort of have sort of flipped this around because uh prat here has the opposite which is instead of the ultimate death gamble it's the ultimate murder gamble. So blue if everyone presses blue nothing happens. Red is the ultimate murder gamble because you initiate the ultimate murder gamble. everyone who press blue will die unless 50% of people choose red. And so it goes back and forth and you can see both of those. Do you want the blood on your hands from playing the ultimate murder gamble or do you want the risk of the ultimate death gamble? I I think it's underrated to just be uh a little thrillseeking and want to press blue because you know you're you're bored and you want >> No, you can tell blue is the correct answer just because of the massive polls where over 50% of people picked blue. >> That's true. That's true. True. Pick blue because you don't want to kill. >> Yeah. You know, >> once you're at Mr. B scale, this is like a real world simulation. >> It is. It is. Well, we're still red cook. >> Uh Simone Sayyed says, "Red button pushers will leave their wives and children to fend for themselves in disastrous situations because their kids can't run fast enough." Mike Salana says, "Blue button pushers are literally leaving their wives and children behind to fend for themselves." um aren't that they aren't guaranteed to push red. Yes. Uh people are going back and forth. Red cells won't believe this, but some people make a distinction between nothing and mass genocide. So they see pushing the red button as effectively committing mass genocide because you are potentially uh condemning the blue button pushers to death in this scenario. Self-Maxer shares a version of the uh of the trolley problem where the red team is not on the rails, but the blue team is pushing the lever to save themselves. Is this an accurate description? Is this is this a fair con is this a fair uh contextualization around this? It's obviously charitable to the red team, which uh of course the TVPN audience seems to be represented by standing next to the trolley lines and not standing on the on the rails. Um but you would be there, Tyler. You would be a blue button pusher pushing on the trolley. >> Looks like I'm an idiot. >> Seems a little risky in this scenario. It does when you have the option just to stand there and watch the trolley go by. You know, it's it's all about frame of mind here. No, but like you can tell that from the polls, from the big polls, you could just tell that blue is the correct option >> potentially. Do you know that beforehand? >> No, you don't. But those people who voted in it did not know it beforehand. >> Yeah. >> And so if if 10 million or how many hundreds of thousands of people voted? Yeah. >> I think you can just assume that that's >> the question is like if this actually was a real vote, >> yes. >> Would people spend a little bit more time thinking about the problem and would that influence their their answer? >> It is. It is a real >> because the social media poll people are scrolling. They see Mr. Beast ask a question, they're just like curious. There's no real stakes. Yeah. And so they just answer quickly. >> But the blue is very much a it's a faith in humanity restored moment, right? If everyone works together, nobody dies at all in this hypothetical. Uh David Shore says, "We ask if >> everybody hits the uh death gamble button together." >> Yeah. >> But there are humanity wins. >> There are there are analogies to that in real life. uh you know, national sacrifice, uh community sacrifice, everyone pitching in for a greater good, to save those who didn't even chime in to serve or save the world. Uh the you know, you think about Armageddon, the sacrifice of going to the the uh the the asteroid to destroy it. The these are heroic uh these are heroic stories. What is what's the chat saying? They're not a I don't think they they really uh are big fans of my position. >> No. Well, uh you know who is uh a large sample of nationally representative Americans. Blue won by a large margin, 3 to one margin. Um and uh everyone voted uh blue here. They asked a whole bunch of people. Uh to close out the blue red button discourse, they pulled 14,000 people, cross-tabbed survey responses by 204 commonly used psychrometric questions, uh the top four personality questions, most predictive of button choice were displayed below. I tell the truth, the blue button pusher strongly agree. I tell the truth. People who don't tell the truth were still more likely to select blue, but a little bit more likely to select red on average. Uh, a very very very interesting social experiment. Have a great day everyone. Leave us five stars on Apple Podcast and Spotify. Sign up for our newsletter tbn.com. We'll see you tomorrow. Goodbye. Cheers.