00:00 Speaker A
Something else I want to point out that you and I were talking about this morning and that Laura Martin of Needham pointed out is the relative spending of these various companies, right? The capex. And I think the point that she’s making with respect to meta in particular on which she is neutral equivalent rated is that if you look at something like capex to sales. In other words, how much these companies are spending relative to their size, the size of their revenue. Meta is a lot higher than the others in terms of the amount of what it’s bringing in that’s going out the door for this stuff. And she’s really questioning the rationale of meta on that front. Now, the noise on that has gotten a lot quieter with regard to to meta, right? But you know, it’s interesting that she’s still bringing up that point.
01:44 Speaker B
Yeah, and look, you know, I was just pulling up meta’s market cap. Uh they’re going continue to spend as I said on the data centers as well as the people they’re building out this data center. That’s like, I don’t know, they overlayed it on an outline of Manhattan and it takes up a huge chunk of the city itself. Not gonna obviously land in Manhattan. It’s gonna be somewhere else in the country. I think Tennessee or around there. Uh but their market cap is 1.96 trillion right now. Microsoft seemed to indicate that they were going to be slowing a bit on their capex, whereas meta is saying, look, we’re we’re going all in. We we’re we’re doing AI for ourselves. Uh we’re doing you know, open source. So it seems to indicate that they’re not going to be open sourcing all of their their AI models going forward. And then they have obviously the the consumer business as far as hardware goes. So they they continue to to lay these out. But you’re right. It does seem a little misbalanced when you look at, okay, Microsoft is, you know, powering these data centers, using them for enterprises with, you know, thousands of people and then consumers as well. And then meta is, you know, offering up its services to advertisers, but then, you know, regular folks who are on reels and, you know, scrolling through, I don’t know, whatever, food or, you know, people’s vacations or my very basic, you know, pictures of beer and food and video games. Um it does feel strange.
04:43 Speaker A
Yeah, yes. And so Brent, let’s go back to you on this. I think we have you back. Maybe. Hopefully. There he is. There he is. Um so we were just talking about um a point that one of your peers on the street brought up, which is sort of meta’s capex relative to its revenue and that it’s higher than pretty much all of these other companies. Does that concern you at all?
05:47 Brent
No, because they’re in the consumer world and they’re monetizing this. If you think about what happened, meta’s head count is actually down from the peak. And so they’re generating accelerating revenue and profits despite all these investments with fewer people. So what does that tell you about AI? It’s working. They drove in the quarter 9% price increase in advertising and it’s because of AI. So the capex number I think is just getting completely overblown, which is like, if you’re spending the money, you’re getting the return, who cares what they spend? And last night we raised our capex number for the industry, and just in the last week, we’ve raised Google, meta, and Microsoft by 50 plus billion dollars. And what what I’d say is you’re seeing this in the numbers, Microsoft accelerating Azure, improving operating margin. Any hood, the CFO Microsoft gave you operating margin improvement for the last two years in the face of AI. Meta just gave you accelerating revenue growth and improving margin, uh with fewer head counts and it’s because of AI. So the point is like, who cares what you’re spending as long as your bookings and the revenue growth and the margins are going higher and that’s what’s happening. So I think there’s just, you know, again, I I understand that there the number one question I get from our investors, which are institutional investors are feels like railroad companies. Like we’re putting these railroad tracks in, we don’t know when the ROI is coming. That’s not true. You see the ROI today. The numbers are very clear. And they and if people listen, you’re you’re hearing it. Anyhood has said this. AI margins are higher than cloud. What does that tell you? So I I again, I I don’t know, I I don’t know how to be, you know, more crystal clear. Revenue, margins, building, accelerating in the face of all these investments. And by the way, we’re literally at the beginning of this wave, we’re not at the end of it. And so, again, I I I think in many of the past cycles we’ve been in, it takes longer for this to happen. Cloud took a long time. Internet took time. We’ve lived through these cycles. This cycle’s happening faster. You know, by the way, every CEO from JP Morgan to the CEO of Mettronic to the CEO of United Airlines to you go through it. Every CEO including our own CEO, we’re all being asked at Jeffries to embrace AI. And if we don’t, um there’s big consequences. consequences. So I don’t think this is um a question of is this paying off or not. I think it’s pretty clear it’s paying off and you’re seeing it already in the numbers.
