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Tech stops are really in focus.
The NASA Compson Index Paul is down two and a quarter percent. The maximum names began reporting yesterday, and it's really a split view here when it comes to those big, big tech names.
And another one is on the docket tonight.
You've got Apple reporting this evening at four thirty pm Wall Street Time, and of course we know that the latest Apple iPhone came out. So this is a huge quarter for the company. On o Agranta is our technology analyst and he covers all things big tech.
Hona Microsoft here.
I mean it's north of a three billion, three trillion dollar mark cap. Company puts up thirty eight percent, cloud revenue growth, stock it down twelve percent.
What's going on?
Yeah? I think that's really what you're saying is you know, last quarter the growth rate of Azure was thirty eight or thirty nine. This quarter was thirty eight they've guided to thirty seven to thirty eight, and that's not good enough for investors. So I think that's really what it is. And you know, they said it on the call that if they allocated all the GPUs to Azure, they would
have grown north to forty percent. What's happening right now within Microsoft is the cloud capacity that they have built, and they've done a very good job about it in the last twelve months. They're allocating it differently, whether it's their kit helb co pilot, which is the coding agent, or the the M three sixty five copilot, their Azure business, and also internally for their R and D, and that you if you can only have this much capacity, you can you know, you will realize the revenue only on
the Azure side. And I think that's where the mismatch is. The biggest question people are asking, is well, the capix is growing in the sixties, but their cloud revenue is growing on the thirty eeth. I think it's a bit silly, to be very honest with you. You know, they know what they're doing in terms of R and D for future growth, but frankly, from our side, thirty eight percent growth is not a bad number.
No, it's hard to hold your nose at that.
But is this a company that you know gets worried about this kind of market reaction or like you said, they're confident in their strategy overall. They're going to move forward with this regardless of whatever message investors might be trying to send.
No, I don't think they will change their strategy. I mean they have to. They are doing whatever it is right for the Microsoft product of families. They and because you think about it this way, in seven years, by twenty thirty two, they will lose the ip that they get from Opening Eye. They need their own models by that they have to have it. So if they're going to put some RND dollars to take care of that, so be it. I mean, I don't think that's a problem.
They will be They are actually even now one of the bigger beneficiaries of all the GENII spending that's out there. You know, it will all come back to the cloud, whether it takes a year, two years, I don't think that's a that's a problem from a long term point of view.
How about cappex, We saw a meta put a huge CAPEX number up their way above where the street was forecasting here from Microsoft, their CAPEX dramatically as well, up sixty six percent from a year earlier. How do you think about capex or how's some market thinking about capex?
So it depends on who's spending the capex. So when we think about it, the three most important companies in our view is Amazon, Google, and Microsoft because they have really strong cloud business that can monetize it. How Meta monetizes it, I don't know, And frankly, the reason for that is because they're saying they're going to drive more engagement internally with their products, but they don't have a
cloud business that can monetize it. Their model is not being bought by Apple to put it in the operating system. So I have no idea what the future for that capex is. But I feel very comfortable the capex that's driven by the three large hyperscale cloud providers because they we know the business that they're in and where the monetization is going to happen.
Okay, before we let you go, just a quick recap of what happened with IBM good enough for an almost five percent gain?
What were investors responding to?
Yeah, I think it's again a game of low expectations. That's where the revenue growth rate you know, was better. They came at the total revenue growth was nine percent, but the software division was around eleven percent, So I think that's really the benefit. But think about it, Service now down so big. Their growth rate was in the twenties. Microsoft, same thing, So it's all a matter of relative expectations, you know today.
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It's been tech here. We had a lot of tech numbers after the close yesterday. One of the ones that just I think surprising people is just is Microsoft and we talked about that with Anorak Grana Meta.
We want to talk about meta as well.
Here men, Deep Singh joins this global tech research head for Bloomberg Intelligence, joining us live here in our studio. Their top line came in better than expected, gave a pretty strong forecast for the current period. So from a revenue perspective, the story seems very much on track, would you take away, Mandy, Yeah.
I mean it's hard to find a business in max seven that's growing thirty percent top line at the revenue base that Meta is at, and that probably explains why they got a green light when it comes to the CAPEX increase that they had in their guide. And I mean Mark was asked a number of questions around large angrid models and what he's doing, and his answer was, I don't have a ton of clarity in terms of what those products are going to look like. All I know is we have a great team, we have all
the compute. In fact, they're renting compute from third party neocloud providers because they feel they've got a lot of ideas and they'll be launching a lot of new products this year. So that's what got everyone excited.
Right, But they didn't give any details on these new products or services Person three, So I wonder is this just he was able to craft a better tell, a better story than he had in the quarters past.
Yeah, and look when you are raising your guide. So consensus was twenty five percent growth for one que they said will do thirty three percent at.
The high end but no details.
No, that's just core advertising, rebit core advertising.
And they said this quarter so they beat this quarter fourth quarters print by two hundred basis points. They attributed that to you know, all the AI ad conversions that they are seeing in the current So without even launching an LLM or a new product, they're applying AI and GPU clusters to the existing ads.
That's the execution.
It is execution, and they're able to do it when Pinterests, Snapchat, Reddit are not even able to grow twenty percent. So that's the difference between you know, a company like Meta and what the smaller digital ad companies are doing.
Can that be their AI story or does the market longer term want to see new products?
Absolutely?
And what would those be?
Well AI assistant And there were references of you know, Meta's AI is going to look different from the leading frontier models like Open AI or you know Gemini, So they their standalone app Meta AI doesn't have any usage right now, so you compare that to a Gemini and chat gipt Meta nobody uses Meta AI. But what they're saying is will have something different in terms of the content what you can do with Meta AI and you have to take a leap of faith with marks that be.
Embedded in Facebook in every Graham that's what the kids call it, the Graham instaf It'll be embedded in those apps, and that will be the use case.
I mean, imagine Facebook groups, They've got so many users. If you have meta AI that actually works, how many things a user can ask a meta AI when you are, you know, reading the group notes or something like that, So it can be very conversational. And that's where the audio part, the text, chat pot part, all that would be customized to the family of fams.
So when it comes to the advertising business, I wonder if what Meta told us based on how it's implementing AI might inform how a Snap, a Pinterest, a Yelp, or Reddit might harness that technology as well, because you look at the share price reaction in those stocks and it's pretty mixed. Reddit is change, but all the other names are down I think.
I mean, there's nothing that's stopping a Pinterest or a Snap from applying AI to their ad ecosystem, So do my MI. In fact, Meta called out e commerce specifically as a vertical where they're seeing the most traction in terms of ad convergence, and these are companies smaller ones. Pinterest is heavily exposed to e commerce, so to my mind, they should come out with a print where they also talk about some benefits of leveraging AI and their ads stack.
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Tesla reported numbers last night.
One of the things that jumped out of folks is Tesla said it will spend over twenty billion dollars on a dramatic reshow a factory line to ramp up production of cars, batteries and robots.
Across the hast a dozen plans. So a lot going on at Tesla as usual.
Let's get the latest analysis there from Steve Man, covers all the auto companies globally for Bloomberg Intelligency. Stand there in Princeton, home of the best Bloomberg Lunch. I'll tell you that right now. Steve, talk to us about Tesla. What's going on there?
With Elon. How's he kind of shuffling up this company?
Yeah, Paul, I think the most what stood out for me was really that the AI investments that they've made in the past few years, it's actually being converted into returns, and that visibility of that return is much better after the call. You know, they actually codified and putting black and white in their presentation the rollout plan for the Robotaxi, and you know they're looking to roll out into nine different cities, mostly in the South, in the first half of this year.
Okay, so some visibility is always great when it comes to Tesla because so much of the story driving Tesla is Elon Musk's storytelling skills and capabilities. Here tell us a little bit more about what Elon Musk said when it comes to Tesla needing to build its own semiconductor factory. I mean, we're just getting our head around the cars and the you know, the self driving vehicles, AI robotics, and now we're talking about chip making.
Yeah, that's that's that's the that's the Tesla business model. They they are vertically integrating. They're looking at the whole supply chain, whole value chain to see where they can cut costs. But the other thing that you know Elon must mention is geopolitics. That plays a role in why they want to build their own chips. But the other thing is there is a huge demand for chips across
the board, AI chips, memory chips. We've already are seeing some shortages on memory chips in the automotive apply chain. So it's not a surprise that they're going vertical. They want to ensure there's a source and they want to make sure that the technology stays in house and they have control of that technology.
Optimist humanoids what is that and is that something that's going to be material for this company.
Yeah, according to what the company's saying, they are making progress. They're going to launch the next version of the humanoid robot. They're actually stopping the Model S and X production in sales it's pretty low anyway, and converting that factory to two humanium robots. But we still think it's years away.
I think for it to be commercially viable and interest from the marketplace, it's probably won't be until the end of the decade, but they will use some of that robot within their own factories.
Steve what about Tesla sinking another two billion dollars into Elon Musk's own startup, the Xai. Have we I mean, do people have a way of seeing whether that has a return on that investment? I mean, is it just money that goes that one direction.
Yeah, there seems to be a lot of confusion in the market, but to me, it is actually a right thing to do because, first of all, Grock, which is part of Xai, it's already in their vehicles, operating in their vehicles as a navigational assistant. And then as robo Taxi rolls out, I think they want to personalize those robal taxis, and Grock through Xai is the perfect tool to do that. System to do that. So you know, if this Tesla is going to use the services from Xai,
I think they need to pay for it. So two billion dollar investment in the Xai makes sense.
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All right, you're looking for an AI stock. How about this one? I bet you didn't think about this one.
Caterpillar got an earning spoost from selling power generation equipment to AI data centers in its fourth quarter. Stocks trading up today, it's hitting.
A fifty two week high. How about that, Chris.
Gilino, he covers a Caterpillar and all those other construction companies, manufacturing companies, senior US machinery analysts for Bloemberg Intelligence. So, Chris, I bet you didn't think early in your career that Caterpillar would be a tech play. Talk to us about their quarter.
Yeah, No, certainly not.
And you know it was one of the I think the top performers last year in the market, and certainly off to a good start this year quarter with solid, you know, beats both on the top and bottom line, really driven by higher than expected volume in their power energy business, as you alluded to. But I think the real standout and the takeaway this quarter was really the
unprecedented order and backlog growth that we saw. Now we came into the quarter with backlog already sitting at a record level, but we saw orders increase more than seventy percent, which drove nearly a thirty percent increase sequentially in the backlog. And what's encouraging it seems that it's pretty broad based. It's not just the data centers and AI, it's construction starting to contribute, mining starting to contribute. So you're really starting to see a lot of momentum starting to build
moving into twenty six. As we get these not only the cyclical recovery start to materialize, but also the secular tailwinds kind of converging here.
So it sounds like a number of different drivers and do they all move to their own timeline in terms of that cycle, you know, they're all kind of hitting their stride at the same time.
Yeah, I think as we go into twenty six, you are starting to see those those cycles converge.
The more cyclical mining.
And construction businesses have kind of been bouncing.
Along trough for a couple of years.
Now we're finally starting to see some stronger order activity and activity momentum building on the non resident and even on the residential side. In the North America mining, you're starting to hear of some more projects on copper and gold, and then obviously they can't add capacity fast enough.
When it comes to power generation.
They're going to be more than doubling their large engine capacity through the end of the decade. So that's more of a supply constraint as we look here at least.
And then your term, Chris, So when you talk to institutional investors about your group, do people just buy the group ie machinery, construction and when the cycles are coming together, and then sell them on or not?
Is that where do I have to be real bottoms up on individual companies?
You know, it varies, and I think it is becoming a little bit more bottom up. You know, historically, for example, trucks, right, you'd always buy when truck orders were at their worst and bottom that's a short cycle business. You'd kind of
pile into those names at that point in time. Agg is a little bit idiosyncratic in terms of how those cycles work and a little bit detached from your traditional economic cycles in that it's more driven by crop prices and farmer incomes and then construction equipment certainly more cyclical
GDP type play. But what you're seeing now is you're starting to see some divergence between those names that have the data center AI exposure like the Caterpillars in the comings of the world, and those have really outperformed over the last twelve months because of their exposure, where a lot of the other machinery names just aren't as a lever to the data center play.
How exposed is Caterpillar to tariffs?
I mean there are some tariffs in place, and there is on a daily basis, threats of new tariffs being put in place.
Yeah, if you want to pick apart one negative in the quarter, it was the tariffs. They did come in a little bit higher than we expected, and it continues to weigh on margins, particularly in the construction and mining businesses. Tariffs and aggregate we're roughly a one point seven billion dollar headwind in twenty twenty five. That's going to step up in twenty twenty six to about two point six billion.
We've really seen Caterpillar with kind of hesitant to push price to start to offset these I think that's really been a concerted effort to try to gain market share, particularly as we are at a softer part in the cycle. I think pricing is going to become much more of
a contributor as we look into twenty six. Right now, they're guidding to about a two percent contribution on the pricing side, but I won't be surprised to see that go a little bit higher, particularly as some of their end markets start to recover.
Those front loaders, dump trucks, all that kind of stuff. Where do they actually manufacture this stuff.
All over the world? Right?
They are the largest equipment producer globally. They have a pretty extensive manufacturing footprint here in North America, but it is a very global business and they certainly have a market leadership position in most of the products that they sell.
I know, we'd like to look at Caterpillar as kind of this barometer for global GDP because it's so exposed to all over the world. Did the company say anything in regards to what it is anticipating for growth for this year, like hotspots and maybe slower parts of the world.
Yeah.
So they put out back in November at their analyst a a five to seven percent revenue cag or target through the end of the decade. They're kind of guiding us to twenty six, being kind of towards the top end of that range. So think, you know, seven percent plus type growth. We actually think that might end up being a little conservative, just given the strength that we're seeing in the order book, just given that the backlock continues to sit at a record level. So we have
really extended production visibility here for twenty twenty six. So I actually think that outlook could be a little bit conservative, particularly as we continue to see a lot of their end markets come off to draw.
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