Meta Delivers Lackluster Forecast & Microsoft's Cloud Unit Grows

Summary

Podcast Summary: Bloomberg Businessweek

Episode: Meta Delivers Lackluster Forecast & Microsoft's Cloud Unit Grows
Date: July 29, 2026
Hosts: Carol Massar, Tim Stenovec, Emily Chang
Guests: Ed Ludlow (Bloomberg Tech Host), Mandeep Singh (Bloomberg Intelligence Head of Tech Research), Kurt Wagner (Bloomberg News Big Tech Team Leader)

Episode Overview

This episode dives into the latest quarterly earnings from the tech juggernauts Meta (formerly Facebook) and Microsoft. The hosts and guests analyze why Meta’s shares dropped after releasing a tepid outlook, the underlying cost concerns, and the context behind Microsoft’s robust cloud revenue growth. The episode also touches on earnings from Qualcomm and ARM, and includes audience Q&A on AI infrastructure, semiconductor supply chains, and the ongoing debate about long-term investments in AI and cloud computing.

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Key Discussion Points & Insights

1. Meta’s Earnings Disappoint: Higher Costs and Slim Outlook

• Headline Numbers:

  • Q2 revenue slightly above estimates at $60.8B, ad revenue at $59.36B.
  • Earnings per share (EPS) below expectations: $6.18.
  • Reality Labs incurred a significant operating loss: $4.62B.
  • Operating income for Meta’s ‘Family of Apps’ fell short of street estimates.
  • Q3 revenue guidance: $61-64B (estimate: $63.17B), perceived as lackluster.
  • Raised lower end of annual capital expenditure forecast to $130B (from $125B).

• Stock Market Reaction:

  • Shares dropped 5–7% after hours ([03:04]; [06:22]; [10:02]).
  • Concerns focus on margin compression: Operating margin declined from 43% to 31% YoY ([10:52]; [16:58]).
  • Free cash flow has "basically disappeared" ([11:18]; Ed Ludlow).

• Cost Drivers:

  • Significant one-time legal charges ($2.4B) and severance costs ($1.2B) factored in ([11:39]).
  • Rising capex is driven by large AI/data center outlays, but revenue growth isn’t keeping up.

• Enterprise & Cloud Pivot:

  • Zuckerberg hints at targeting enterprise customers and building a cloud/API business ([13:11] Mandeep Singh; [15:23] Ed Ludlow).
  • "He expects things to improve across enterprises and that’s new because all of Meta’s generated revenue is from the consumer side." – Mandeep Singh ([13:11])
  • Meta's strategy is late compared to established cloud providers.

• Youth Lawsuits:

  • Meta discloses potential for material loss due to youth-related social media trials ([12:07]).

2. Microsoft Surges: Cloud and AI Lead the Way

• Strong Results:

  • Q4 cloud revenue: $59.3B, beating street estimate of $58.7B.
  • Azure/cloud revenue up 43% YoY (vs estimate of 39.6%).
  • Adjusted EPS: $4.74 vs estimate of approx. $4.25 ([03:34]).
  • Microsoft 365 Copilot has over 30 million paid seats (up from 20M in March) ([09:01]).
  • Azure revenue surpassed $100B annualized for the first time.

• Financial Discipline & ROI Debate:

  • Capex for fiscal year 2027 projected between $220B–$250B ([48:52]; [49:13]).
  • Analysts worry capex growth is outstripping Azure revenue growth, making future ROI uncertain ([07:56] Ed Ludlow; [36:55] Ed Ludlow).

• Investor Concerns:

  • Stock has fallen 20% YTD despite strong fundamentals, reflecting sentiment concerns and uncertainties post-OpenAI exclusivity ([34:46] Mandeep Singh; [36:42] Ed Ludlow).
  • "Backlog number that they gave: $684 billion... 40% of that is tied to OpenAI – the concentration is immense." – Mandeep Singh ([35:30])

3. Qualcomm & ARM: Pressures and Outperformance

• Qualcomm:

  • Q3 outlook missed estimates due to component shortages and rapid Apple business decline ([05:19]; [25:22]).
  • Stock down 4–6% after hours.
  • Exposure to smartphone market, especially in China, is a weakness; diversification efforts noted ([25:39]; [27:01]).

• ARM Holdings:

  • Outperformed primarily due to strong data center exposure, though still sensitive to broader memory markets ([27:01]; [27:39]).

4. AI-Driven Infrastructure Boom – Winners and Worries

• Memory and Storage Demand:

  • High Bandwidth Memory and SSD demand booming due to generative AI workloads.
  • SK Hynix reports six-fold profit surge and forecasts demand to outpace supply to at least 2030 ([32:06]; [33:10]).
  • Spinning disk storage sales impacted as NAND flash/SSD prices rise ([28:38]; Mandeep Singh: “fundamentals for all of these companies... are very strong”; [29:55] Ed Ludlow).

• Supply Chain Complexity:

  • AI infrastructure buyers (hyperscalers, large platforms) diversify orders across multiple suppliers to ensure availability ([40:41]; [42:02]).
  • “Demand is five to ten times more than what we can supply.” – Paraphrasing Nvidia’s Jensen Huang, via Mandeep ([42:02]).

• Market Skepticism on Component Suppliers:

  • Despite strong demand, component supplier stocks (e.g., optical/interconnect) have sold off sharply, suggesting profit-taking and concerns over cyclicality ([46:07] Mandeep Singh).

5. Audience Q&A — Notable Topics

• How much of Microsoft’s Azure growth is AI vs. traditional cloud?

  • Mandeep estimates 20–25% is attributable to AI-specific workloads ([38:49]).

• Will over-ordering components (double orders) artificially boost memory/logistics demand?

  • Analysts believe double ordering isn’t a major risk given extreme supply constraints ([42:14]).

• What would cause a significant drop in Meta or Microsoft’s stock after hours?

  • Risk factors: Announcing an equity raise, margin squeezes, or capital spending surges without matching revenue ([43:16]; [43:56]).

• Is the AI/data center “gold rush” sustainable, or just groupthink?

  • Guests compare it to buying property in a boom: the bet is that AI demand will justify today’s massive outlays ([57:57]; [59:03]).

6. Legal & Regulatory Headwinds

• Meta faces massive and growing legal bills over youth addiction/social media harm lawsuits, with settlements ongoing ([54:31]; [55:39] Carol Massar).
• $2.4B in legal expenses for Meta this year ([54:31]).

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Notable Quotes & Memorable Moments

• On Meta’s costs:
  "Operating margins didn’t just come in significantly below consensus by 4 percentage points, but costs are up 55% so the operating margin has fallen from 43 to 31. Costs are higher and free cash flow has basically disappeared."
  — Ed Ludlow [10:52]

• On Microsoft’s transparency:
  "The more information, the more transparency. That’s helpful big time."
  — Tim Stenovec [09:36]

• On Meta’s enterprise pivot:
  "If Meta has to compete with open source, it’s going to be interesting how they position themselves, whether in terms of lower token pricing or another strategy, because they’re building a business from scratch and it’s not easy."
  — Mandeep Singh [14:10]

• On Microsoft’s AI strategy (and risk):
  "At the end of the day, Microsoft is spending well over $100 billion a year on AI infrastructure and the CapEx number has grown much faster than the metrics we have available to judge the ROI, which is Azure in this case."
  — Ed Ludlow [36:55]

• On the memory market:
  "The fundamentals for all of these companies on the memory and storage side...there’s nothing that suggests a cliff in the near term."
  — Mandeep Singh [28:38]

• On the gold rush mentality:
  "It feels expensive today to go build these data centers. But in five years they will be very happy they did because the demand is going to be so high that it will look like a cheap investment for them."
  — Carol Massar [57:57]

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Important Timestamps

• Meta Earnings Recap: [02:07] – [03:04]; In-depth analysis [10:02] – [17:06]
• Microsoft Earnings Recap: [03:34] – [09:44]; In-depth analysis [07:56] – [09:44]
• Qualcomm & ARM Results: [05:19] – [07:26]; [25:22] – [27:01]
• Meta’s Enterprise/Cloud Ambitions: [13:11] – [15:23]
• AI Memory/Storage Fundamentals: [28:38]; [29:55]
• Q&A on Capex & AI ROI: [34:46]; [38:49] – [40:03]; [57:07]
• Meta Legal & Regulatory Headwinds: [54:31] – [55:39]
• Market Skepticism on Component Suppliers: [46:07]
• Final Reflection on Capex/AI Gold Rush: [57:57] – [59:18]

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Episode Tone and Language

The hosts and guests maintain a lively, analytical, and candid discussion. There is a clear sense of urgency and critical thinking around technology investments, especially relating to the AI/cloud boom. The language is insightful, sometimes skeptical, but always rooted in real-time financial data and on-the-ground reporting.

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Summary Takeaways

• Meta’s core business is healthy but faces major margin and cashflow pressures from legal costs and a looming AI infrastructure pivot. Investors want clearer ROI and are skeptical about new positions in the cloud market.
• Microsoft’s cloud and AI-driven revenue is pulling ahead. However, analysts remain watchful that surging capex does not outstrip top-line growth—ROI remains under discussion. Its partnership with OpenAI is no longer exclusive, adding complexity.
• Broader AI infrastructure (chips, memory, storage) is in high demand, but the whole sector is navigating supply limits, rising costs, and questions about how sustainable the current “gold rush” investment climate will be.
• Audience Q&A highlights investor anxiety about AI ROI, over-ordering risks, and the wisdom of enormous tech spending by hyperscalers.
• Legal and regulatory issues (especially for Meta) are not going away, and add material uncertainty to future earnings.

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“I would much rather overspend and be wrong betting on this than wake up in a few years and realize we underinvested.”
— Mark Zuckerberg, recalled by Kurt Wagner [59:33]

---

This episode offers a comprehensive snapshot of the current crossroads for tech giants, where balancing AI ambition, cost, and real earnings is more delicate than ever.

Transcript

[Carol Massar]

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[Ed Ludlow]

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[Tim Stenovec]

Bloomberg Audio Studios Podcasts Radio News this is Bloomberg

[Emily Chang]

businessweek Daily reporting from the magazine that

[Carol Massar]

helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens.

[Emily Chang]

The Bloomberg Business Week Daily Podcast with

[Carol Massar]

Carol Massar and Tim Stenovec on Bloomberg Bloomberg Radio.

[Tim Stenovec]

All right everybody. Yes indeed. You are listening to Bloomberg businessweek Daily and this is Carol Massar along with Tim Sandback. We've got Matt and Microsoft crossing the Bloomberg terminal.

[Emily Chang]

I am going to Met a Platforms for shares are lower. The company did miss estimates in second quarter earnings per share. The company also raising the lower end of its expense outlook. The company sees third quarter revenue coming in at 61 to 64 billion dollars. The estimate was for 63.17 billion dollars. The company also expects third quarter total revenue to be in the range of 61 to 64 billion. As I mentioned, second quarter revenue did come in just above estimates at 60.8 billion. Second quarter ad revenue coming in above estimates at 59.36 billion. Second quarter earnings per share coming in below estimates at $6.18. Family of Apps operating income came in significantly below estimates. Second quarter Reality Labs operating loss coming in above estimates at $4.62 billion. Second quarter family of apps revenue coming in again. Second quarter rather family of apps revenue coming in at $60 billion. The estimates for $59 billion.

[Tim Stenovec]

All right, as you mentioned though, shares of Metta platforms, we're looking at that stock trading down about 5% in the after hours. We're going to be looking for some commentary about the company looking to build out a cloud business. Let's go over to Microsoft. That stock up about 3% here in the after hours.

[Emily Chang]

Yeah, we're actually getting that redhead. The company sees fiscal year capex 130 to 145. It saw 1 to 145. This is Metta Platforms in terms of fiscal year capex 130 to 245. It saw 125 to 145.

[Tim Stenovec]

Let's keep in mind that Metta did raise its spending outlook for the year last time. It reported back in April and the stock sold off the next day. So we're going to keep an eye on that one. Meta continuing to trade down about 7%. Its other MAG7 brethren up about 3.8% here in the aftermarket. Let's go through the numbers folks. You've got fourth quarter cloud revenue, always important. 59.3 billion. That is a beat. Street estimate was for 58.7. Azure and other cloud revenue X currency XFX up 43%. The estimate was for a gain of about 39.6%. Adjusted EPS for the fourth quarter, $4.74 a share. That is almost 50 cents higher. 49 to be exact than what the street was expecting. Intelligent cloud revenue for the fourth quarter. 39.31 billion. That was a beat. 38. 38.17 was the street estimate. Let me go to also the fourth quarter revenue as I mentioned, 90.01 billion for the fourth quarter beating the street estimate of 87.72 billion. The company with some commentary, Microsoft saying that its 365 copilot reached over 30 million paid seats. It said the fourth quarter 365. Consumer cloud revenue increased 24%. Azure revenue surpassing $100 billion for the first time. And so it also said $3.2 billion gain from its investment in anthropic in the fourth quarter. So again we're seeing some optimism in the aftermarket when it comes to Microsoft. Again, that stock, as I pull it up for you, it is up about 3.3% here again. Pressure on matter going. Qualcomm also out.

[Emily Chang]

Yeah, Qualcomm pressure on Qualcomm as well. Down about 6% in the after hours. The profit forecast missed estimated sign of those woes of smartphones. Earnings coming in $2.5-225 a share. Revenue will be 9.7 billion to 10.5 billion. That would miss the average analyst estimate. The company's losing business from Apple more rapidly than anticipated. It's being forced to raise prices due to supply shortages. I want to note that Ed Ludlow is going to be speaking with Cristiano Amon, the company's CEO on Bloomberg Tech tomorrow. So be sure to tune in for

[Tim Stenovec]

that one more I've got to bring to you because we've got AAM holdings also out in the aftermarket. We'll take a look at the share price there. But the company sees second quarter revenue. So this is an outlook. See second quarter revenue 1.33 billion to 1.43 billion. The estimate is 1.35 billion. So it looks like in terms of the upper end of the range, there's some potential for upside. So see second quarter adjusted operating expenses of about 780 million. That's less than what the street was expecting. 793 million first quarter adjusted gross margin. So we're looking back at the last quarter, 98.1%. That's exactly what the street was looking for. First quarter total revenue that came in a little bit better, stronger than the street expectation. 1.29 billion was the actuality. The street estimate was for 1.26 billion. First quarter adjusted EPS 45 cents a share. That's a nickel better than what the street was expecting. And just taking a look at aam, just slightly lower here in the aftermarket. Keep in mind though, I think this one, let me just pull it up on my Bloomberg. It's up about 105% year to date. So there are always, you know, when you've had quite a run, maybe investors looking for even more.

[Emily Chang]

Okay. This is one that it is important to many of our clients. I'm going to mention it, but we're not going to talk about it much in the next few minutes. Starbucks shares surging in the afters hours. It's up about 5%. Third quarter comp sales came in way above estimates, up 7.9%. The estimates for 5.73%. The company sees global comp sales growth nearing 6%.

[Tim Stenovec]

Yeah. Our headline on the story showing its turnaround bid is gaining Momentum. We know that they've been working on things under their new CEO. Of course we're talking about Brian Nichols, so coming over from Chipotle, but it's been a little bit of a struggle. All right, folks, let's get to it though. Big tech earnings, Microsoft rallying 3 1/2% in the aftermarket. You've got matter under pressure. Ed Ludlow is host of Bloomberg Tech on Bloomberg Television. 11:00am Wall street time Monday through Friday. Ed, pick where you want to start.

[Ed Ludlow]

To start Microsoft, I feel like it's probably the most tangible. Right. So everything is in the cloud growth better than expectations. And you know, the math was really simple going into this. They've just closed the book on their fiscal financial year. And the question still remains when we get to the call, what does Microsoft tell us about the capital expenditure growth into next year? Because the street sees capex growing beyond 50%. Top line growth on Azure is 43%, give or take X Tac. All the street really wants to see is that pace of growth being near to Capex growth. Right. It's a really simple equation. But going back to Alphabet, which is highly analogous, there's so much commentary here from Microsoft about traction with copilot like more data points that are just easy, tangible to understand about how Microsoft's AI efforts are going. Right. And that's the stock reflecting that in after hours.

[Emily Chang]

Is the 30 million paid seats a big deal for 365copilot for Microsoft.

[Ed Ludlow]

Yes, because it's versus 20 million at the end of March. Exactly. What I'm pointing to the other one is I think you guys mentioned this, but like Nadella, Nadella was talking about Azure generating more than $100 billion in annualized revenue. You know, remember Amazon went to that figure very early, you know, in its, in its kind of like growth of us. Then what Amazon did they report tomorrow but was to say this is the AI specific annualized revenues. So Microsoft's just saying more, you know, giving newer data points which take us beyond the simple. Are the top line numbers growing beyond the capex growth which you kind of

[Tim Stenovec]

want to get right when a company is spending and building and doing all of this, the more information, the more transparency. That's helpful big time.

[Ed Ludlow]

Yeah. I mean again from the press release alone, Microsoft's not saying anything about fiscal year 27 CAPEX.

[Tim Stenovec]

Yeah.

[Ed Ludlow]

So there's this period of time where everyone's like okay, reading, digesting the statement and the release and then on the call everything could change. And that is the jeopardy of Big tech earnings and that's what's up.

[Emily Chang]

Well, let's do a little bit with Metta platforms and then we'll get back to some of these other names. Shares of Meta, shares of Metta down about 6.3%. Let's go ahead and say 6%. Some numbers here. Third quarter revenue 61 to 64 billion. The estimate was for 63.17 billion. Second quarter revenue came in above estimates. Second quarter EPS came in ever so shy of estimates. What is the thing that is moving the stock with matter today so hard?

[Ed Ludlow]

I mean revenues up 28% ahead of expectations. Right. Ad impressions have improved. Pricing has improved matters. Core business, its bread and butter is still advertising. The story was how is I made that better, more monetizable.

[Emily Chang]

So revenue should be higher than estimates, right?

[Ed Ludlow]

It is, it is ahead of estimates I think at 20.

[Emily Chang]

Sorry, sorry. For the third quarter, the outlook. I'm sorry.

[Ed Ludlow]

Yeah, for the outlook, right, yeah. The one thing that my, my brain is going to is that the operating margins didn't just come in significantly below consensus by about 4 percentage points but costs are up 55% so the operating margin has fallen from 43 to 31. Costs are higher and free cash flow has basically disappeared. I'm reading the statement.

[Emily Chang]

Sorry Ed. Is that because they're investing so much in talent? Is it because the tokens cost so much like this? These companies are spending a ton of money. We looked at last week what, what Alphabet said about going, you know, cash flow negative. Metta platforms is feeling it. Matter is feeling it when it comes to its earnings because it's spending more money.

[Ed Ludlow]

Maybe they're disclosing that There was a one time legal charge of $2.4 billion and then severance costs. Super interesting $1.2 billion charges. We knew about the story, right about the waves of Meta layoffs. So that could excluding those the underlying operating performance was kind of much nearest expectations. Maybe they're a big factor. But also goes the idea that the free cash flow is basically gone which is such a common story across the max seven.

[Tim Stenovec]

Right, right. And I want to just throw one other headline that cross the Bloomberg Metta saying some youth related trials may result in material loss like we have done here. Olivia Carville and I believe others on the team have done a lot about social media and the impact on youth and we know Metta has certainly been one of the targets. So just interesting to get some of that clarity. Again, just a quick headline. Meta boosting the low end of its annual capital spending outlook and I'm looking at the live blog too and I think at this is something that you were going to and this is our Linda on our Tech editor. One thing traders might be reacting to second quarter operating margin 31% versus 43% a year earlier. The company is expecting that total expenses of 165 billion 269 billion raising the low end from 162 billion previously. I want to bring into the conversation to our Mandeep Singh, Bloomberg Intelligence Global head of technology research making his way from TV into our radio studio. We're talking about Metta. What's investors don't like it.

[Mandeep Singh]

I mean look, there wasn't much of an upside when it comes to the top line, both this quarter and the guide. And when it comes to capex, even though they didn't raise capex, the one line that caught my attention was that first line from Mark Zuckerberg that he expects things to improve across enterprises and that's new because all of Meta's generated revenue is generated from the consumer side. So the fact that he has that in the first line shows that they are leaning towards enterprise usage, the cloud builder, cloud build, API usage by enterprises and that's what they are betting on when it comes to this.

[Emily Chang]

I mean silly question but does Meta actually have an LLM that can be licensed by some of these enterprises in a way that would be different than an enterprise using a platform from Microsoft or from OpenAI or from Anthropic?

[Mandeep Singh]

It's getting more competitive when it comes to raw LLM usage. And the reason I say that is because of kimik3 and all these open source models that have really taken off and are being used for use cases besides the frontier where Anthropic is being used. I think if Meta has to compete with open source, it's going to be interesting how they position themselves whether it's in terms of lower token pricing or they have another strategy because they're building a business from scratch and it's not easy. They're late to that cloud game, they're late to that API game. So how they go about it, who those anchor customers are going to be, that's $1 million question. Who are they going to partner with in terms of that enterprise usage? Is it going to be Microsoft or Anthropic? We don't know that.

[Emily Chang]

Well, come on back in here. What do you think? You're going through all of these releases right now. You point out that Mark Zuckerberg what Mandeep was referring to Mark Zuckerberg writing Quote, AI is accelerating our core business today, powering our next generation of products and opening the door to entirely new enterprise opportunities. What are those opportunities?

[Ed Ludlow]

Yes, Bloomberg's reported that Matter has explored a literal cloud computing business. I heard Charlie call Meta a hyperscaler. It operates data centers at hyperscale for its own business, for its internal workloads. That's very different to renting out compute capacity to third parties. But Bloomberg's reported matters. Looking at that more recently, Kurt Wagner got on the phone with Mark Zuckerberg, right. And he said, yeah, you know, that is something, an idea of something we might do. That quote around enterprise opportunities is pretty much the sort of clearest example we've had. And I think going into this, I'd wager that for the call, that is something that analysts will focus questions on. It's not about. It's not about ROI on the AI investment. It's about ROI on the infrastructure they're building. How can you basically make new revenue streams and more money on all the infrastructure you've built? It's so interesting. I think Mandeep's very smart to get to that so quick and interesting, by the way, because how many quarters on the show do we say, well, here's the quote from the CEO at the top of the reason and we kind of move on. And how much work is this one doing? I find that fascinating.

[Tim Stenovec]

I want to ask both of you, because here we have Metta under pressure. You've got Microsoft though, rallying in the aftermarket. Not up as much as it was earlier, but still up about 1.4%. Mandeep, let me bring you back in here. What is a better tell on the I spend the narrative? Like, is it Microsoft in terms of the enthusiasm and the expected momentum to continue?

[Mandeep Singh]

I mean, just look at the margin degradation for matter. Here they went from 43% to 31% operating margin.

[Tim Stenovec]

Massive drop.

[Mandeep Singh]

It is a massive. And that's where a Microsoft with its cloud business is. Is able to cushion, you know, some of the headwinds it is facing from all these lamps and still do very well in terms of the holding up the margin side of the equation.

[Emily Chang]

Apart from capex, where's that money going? Why are margins under pressure?

[Mandeep Singh]

I mean, in the. So with all these companies now, once you raise your capex, you have to show the capex in the depreciation line so your cost of revenue will keep going up. So in the case of Metta, it's not as if they are hiring a lot more people. They did hire A lot of people and paid millions of dollars. But I don't think that.

[Emily Chang]

You don't think that's what it is.

[Mandeep Singh]

No, it's that cost of revenue line going up because now those depreciation expenses would kick in.

[Emily Chang]

So it's just capex.

[Mandeep Singh]

You think it will be capex but

[Emily Chang]

can't they make up for that with, with the investments that they've made in making advertising more targeted and getting us to click or at least getting marketers in front of eyeballs in an even more efficient way.

[Mandeep Singh]

The ad pricing growth was, it was around 14% and you know that's pretty solid. That's been the case for the last few quarters. So the problem now they have is all those levers which once were there to protect the margins are not good enough when your capex is growing up like this and you know your cost of revenue will keep growing so that's, that's a hard part and managing margins here for matter.

[Tim Stenovec]

So Microsoft's like sorry Matt, but we're having a pretty good day. Microsoft shares still up in the aftermarket. So Ed Ludlow, you've been going through and reading more from the company. What's jumping out at you?

[Ed Ludlow]

Well going into this I think we knew that it was the case. Maybe Mandy can clear it up. I think there is some kind of accounting or disclosure change for Microsoft where the CapEx number and they're accounting for leases specifically makes the CapEx number look smaller. But again like we're in this period now where the call comes very important because we know what the Azure growth number is for the quarter gone and the period this closed the door on the financial year 26, financial year 27 starts and you know the very simple math is in an environment where everyone thinks capex goes up, what is the percentage growth in capex that is foreseen relative to the growth in Azure? And that's why they're putting so much emphasis on all these other metrics the like maybe non financial in nature to get some evidence that their investments are getting traction.

[Emily Chang]

What I don't know, I don't know. I mean, I think. Go ahead.

[Mandeep Singh]

I mean the one thing I had in mind before coming into earnings is if a company doesn't raise their capex in an environment where memory prices are up 20, 30% to me they are cutting back somewhere else and that would be my interpretation for Metta is because they didn't raise capex they certainly are offsetting it with something else, we just don't know what.

[Emily Chang]

So where are they doing that.

[Mandeep Singh]

I mean, they don't want to raise Capex because the stock would have been down even more. They raised the Capex so they didn't have a choice. I mean they are being forced to be disciplined here in terms of Capex because the market doesn't have a tolerance for, for higher metals. Capex for this year and possibly for 2027.

[Emily Chang]

Some context to the word discipline now, Carol. Discipline for metal platforms means 130 billion to $145 billion in capex this year.

[Tim Stenovec]

Well, Ed, come on back in here though for Metta moving into cloud though this business and maybe we'll get more on the call about their intentions and their plans. I mean, is it still the right move for Metta?

[Ed Ludlow]

I mean, I feel like just going off past action and precedent that we're going to get to the call. And you know, like the way I think about it is if you're listening or watching BusinessWeek right now, you're asking yourself what's still to come. We've gone through the numbers, we've gone through the headlines. Everyone with MATTER knows about Mark Zuckerberg. Susan Lee, the CFO is very important and often does the heavy lifting of communicating the financial strategy. I just see a world in which we get to the call and she's like, yeah, here's our commentary on capex. Mandeep's point is so important because it's not new. And I mean that with massive respect. The Capex doesn't just go up because you need to spend more to build more to meet demand. Capex can also go up because the cost of building those things is higher. You know, you have labor and construction, inflation, materials, inflation. Memory is a massive macro factor. You know, IBM basically tried to blame 10 days ago the lack of spending on their technology mainframes in particular because their customers faced higher capex, largely relating to higher memory prices. So you know, all of these factors are common to all of these capital expenditure deployers who want to build infrastructure.

[Emily Chang]

Stay with us. More from Bloomberg businessweek Daily coming up after this.

[Carol Massar]

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[Ed Ludlow]

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[Tim Stenovec]

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[Emily Chang]

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[Carol Massar]

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[Tim Stenovec]

All right, so we're tracking Metta and Microsoft here in the after hours. Microsoft up about 2% a little bit more so just following earnings. If I go on over to Matter it is still down about 5.6%. Let's just also throw into the mix. We've got Qualcomm. That one also came out with its results. And the stock right now in the aftermarket as I bring it up on my Bloomberg, it is down about 3.5%. And then we have ARM holdings, we

[Emily Chang]

have ARM hold as well. I want to go to Qualcomm real quick to add because that is interviewing Cristiano Amon tomorrow on, on Bloomberg Tech. Be sure to tune in for that. The CEO of Qualcomm and the company gave a weak forecast for the current quarter. It cited component shortages and rising costs. That's not a new story by any means.

[Ed Ludlow]

I mean you've known this about, so it's not new. I would say in the smartphone market, it seems worse for Qualcomm than we thought. You know, they are the main processor maker for smartphones. They are getting hit on all sides because of end market demand. Being hit by memory, for example. They have tried to diversify the business away from that reliance on smartphone, but within smartphone they're also kind of, it seems like losing business from Apple faster than, than was modeled for. And then like they are super, super entrenched or exposed to Android in China. Right. And so like in aggregate, all of the forecast for that, that handset market, they aren't, they weren't rosy to begin with. The thing that I will ask Cristiano is for him to give me his latest assessment of the smartphone market for this year and whether it is better or worse than he had told me last quarter. So simple. But it is possible that things deteriorate, you know, quarter to quarter. And reading Ian King's report on the earnings that that seems to be the case.

[Tim Stenovec]

Hey, so Qualcomm down about 4.3% here in the aftermarket. ARM holdings just down about 8, 10 of a percent. AAM delivering a sales forecast of about 1.3 billion in the fiscal second quarter. And we did see the stock under some pressure here. Mandeep, come on back. In anything in terms of AAM or Qualcomm that's, that's of note for you?

[Mandeep Singh]

I mean, just exposures. I think AAM because of the data center exposure continues to do better even though AAM does have smartphone exposure. But because their data center exposure has been much higher in the past few quarters, they seem to be beating numbers. Whereas in the case of Qualcomm, I mean they are talking about a 2029 guide and how the business would be more diversified by then. But in the near term this business is declining. The handset business is still under pressure because of the consumer smartphone and the memory pricing impact.

[Tim Stenovec]

Our right through on AAM noting royalties from those products, data center space specifically more than doubling from a year earlier and the appetite for a new chip lineup is greater than anticipated. This is coming from the company's CEO ARM Holdings.

[Emily Chang]

We are doing something cool and exciting and new here on Bloomberg businessweek daily. Thank you to sending for sending in your questions. You might have heard yesterday that we're taking your questions. It's a new feature exclusively for Bloomberg.com subscribers. And for terminal subscribers, it's easy to do you submit questions for our team to answer live on air. You go to bloomberg.com/ask radio to send in your question bloomberg.com/ask radio and we've already got some good questions coming in.

[Tim Stenovec]

We do indeed. And of course with us right now, our experts, Ed Ludlow, Bloomberg Tech host out there in our San Francisco bureau, Mandeep Singh, Bloomberg Intelligence Global Head of Technology Research. Mandeep, some questions that came in for you specifically, and this is kind of a little bit more broader, what is happening with spinning disk storage sales due to the price increases for Solid State?

[Mandeep Singh]

I mean, look, all of these markets, whether it's memory or storage right now, they continue to have very positive fundamentals simply because when you look at how inferencing workloads are run and there is this concept called KV Cash, which is essentially storing all the weights of the models and the context of the models and then moving it across whether it's storage to memory or vice versa. And that continues to increase in terms of volume because of the high usage these LLMs have. So I think the fundamentals are very strong. And that's why when I see my, you know, market reaction like we have seen over the past one week for memory stocks, it's not justified by fundamentals. That's just market positioning because the fundamentals for all of these companies on the memory and storage side, like it's volume driven, price driven, and there is nothing that suggests a cliff in the near term.

[Tim Stenovec]

We just want to say that question came from Joel in Albany, New York. And that was for you, Mandy.

[Emily Chang]

And it's such a good question. I want to pose, I'm going to pose the same question to Ed Ludlow because we also have Ed Ludlow here and I know he wants to jump in on this. Again, Joel in Albany, sending this question into us. What is happening with spinning disk storage sales due to the price increases for Solid State? Go ahead, Edge.

[Ed Ludlow]

Yeah, I mean, Mandy put it completely succinctly, but basically I has heightened supply across NAND flash memory, memory prices, SSDs. And as a result of that tight supply, because the demand is new, it comes from newer areas. In some cases it makes things much more expensive. It is slowed some migration from different technologies like hard disk drives to flash. The thing that the industry on the storage side is compared to fronting, just as they are on the memory side is looking at their history and aggressively expanding capacity on a permanent basis and saying like we will invest into this in the belief that the capacity, the demand will still be there in whatever number of years time. It's the same formula for them. And it's been really interesting to speak with the CEOs of those companies over a number of quarters and say like, why don't you guys just build more capacity like the same way the memory guys are doing. And they'll say, well, you know, because we're a little conservative and we're worried about us being wrong, you know. And that is what a lot of the supply chain of call it AI is confronting. The one thing I point out is Qualcomm. You know, earlier I talked about Qualcomm's end market in the smartphone. It's a little bit of a tangent being, you know, memory prices do put off consumers when handset prices are higher. But the point that Qualcomm is making is also that production is being impacted due to literally limiting supply of components. And that makes it difficult on the supply side for them to leave money on the table.

[Emily Chang]

It's hitting everyone. It's hitting everyone, including consumers.

[Tim Stenovec]

I just want to point out, speaking of consumers, we're just also not tech related, although they do, they might, they

[Emily Chang]

might, they might argue with you about that.

[Tim Stenovec]

Starbucks does use technology, but their shares are jumping about 11% after boosting fiscal year adjusted EPS outlook. We just want to throw that into the mix as well. Everybody might need some Starbucks tonight to write up their research and all of this earnings after the close. Mandy. But I want to layer on top of this to SK Hynix profit disappointing their spending on capex soaring to $31 billion. They did report a six fold surge in quarterly profit. You know, I feel like, can you take one of these reports, which is a great read on AI on its own or do you have to do it against kind of the broader stories?

[Mandeep Singh]

I mean it's great that we have, you know, all the customers of these companies also report the same day as SK Hynix. So you will read the commentary to connect the dots. But in terms of fundamentals, again, I know the quarter was driven by price increases. 30% ASP growth for SK Hynix and they talked about some long term agreements with 10 of their customers. So that may capture price increases going forward. Which is probably the reason why the stock reacted negatively. Okay, but look, I mean right now these companies are showing very good fundamentals in terms of what they are making, how they are dealing with the customers and they want to avoid a situation where the spot pricing really goes down and that collapses.

[Tim Stenovec]

Right?

[Mandeep Singh]

Yeah. And so that's why these LTA's and actually are a positive. If you ask me whether it was Micron before and now SK Hynix, they want to make sure they have visibility and things don't collapse.

[Tim Stenovec]

You've talked to us about this. I will say SK Hynix said they expect demand to outpace supply till at least 2030. That 2030 seems to be that magic date that everybody talks about.

[Emily Chang]

I wish I could see that far into the future. I want to talk a little bit about Microsoft and go back to Microsoft. The company shares are higher right now by just about 2%. They were as much as 23% higher. The company reported fourth quarter results. They beat expectations on key metrics including cloud revenue. Some other commentary that was really important here. For the fourth quarter 365 commercial cloud revenue increased 16%. Azure revenue surpassed $100 billion for the first time. Then this one's really important. Microsoft 365 copilot reached over 30 million paid seats. Once again, shares of Microsoft in the after hours up 2%. But going into this print Carol down 20% this year.

[Tim Stenovec]

Yeah, I want to go into this. Exactly. We know Microsoft shares have been under pressure. That brings us to another question. Thank you, Anna in New Jersey who sent a question to bloomberg.com/ask radio. We are bringing our listeners into this conversation. She says all right. I'm a senior, a longtime investor in Microsoft. I've been so worried about my over 20% drop in Microsoft stock price this year. I understand the stock decline has been due to investor sentiment about the company's strategy or lack thereof. Is it a valid concern? If so, is the company making changes to its business strategy as it relates to AI? More importantly, should I stick with Microsoft going forward? We don't give advice about whether you.

[Emily Chang]

Neither does Mandeep. Neither does Mandeep.

[Tim Stenovec]

Does Mandeep. But her concerns about the investor sentiment about the company's strategy or lack thereof. Is it a valid concern?

[Mandeep Singh]

It is a valid concern because of what happened between Microsoft and OpenAI. Remember, Microsoft was way ahead of everyone else because of their OpenAI partnership. And things seem to have slowed down for them because now it's not an exclusive agreement anymore with OpenAI. And even though that agreement does last through 2031, it's still the fact that it's not an exclusive agreement is what has raise concerns. And all these companies are competing with Microsoft. At the end of the day, you know, whether it's Open Air anthropic, it's

[Tim Stenovec]

a they Microsoft did say the fourth quarter open air investment impact on EPS was a minus 7 cents a share. I don't know is that significant or is that to be expected or what does that mean?

[Mandeep Singh]

I think for me that really wasn't a surprise. It's just the backlog number that they gave. 684 billion. Just think about how much pipeline does this company have? And even if 25% of that backlog gets converted to revenue, that's huge. So from, you know, a long term perspective, it feels like if a company has up to $700 billion in revenue visibility, they're in good shape. The problem for Microsoft is a lot of this backlog. In fact 40% of that is tied to OpenAI one company.

[Ed Ludlow]

Wow.

[Mandeep Singh]

So the concentration is immense. And that's where because things haven't gone really well with OpenAI in terms of the partnership that they had the exclusivity. And OpenAI has also fallen behind when it comes to the LLM raised to anthropic. So those two fronts are where I have my concerns.

[Emily Chang]

Ed, I know you have some thoughts on this question too. Again, this is from Anna in New Jersey. She asked this, this question. All she did was go to bloomberg.com/askradio. She's wondering about the company's AI strategy or lack thereof. Is it a valid concern?

[Ed Ludlow]

So it's not new. Right? Imagine if they phoned in and actually posed those questions over the phone. That'd be terrifying. June was the worst.

[Emily Chang]

Don't give our managers any ideas. Okay?

[Ed Ludlow]

June was the worst month for the stock since 2000. 2000, go back to March, the worst quarter for the stock since 2008. And basically Bloomberg has written about this endlessly. The stock did rise, yes, last year about 14% or 15%. And over the last 12 months has underperformed the tech sector, essentially. You know, if you just take whatever gauge of the S&P 500 you want, the ROI debate is still there. You guys played a soundbite with Charlie earlier from one of the analysts who basically basically said, and forgive me, I'm blanking who it is, I'll remember in a second that Microsoft should get credit for its discipline on capex. There's a section of the street that believes that, that they've been the most disciplined. But at the other extreme, there's a massive ROI debate which Mandeep kind of outlined a little bit. But at the end of the day, Microsoft spending well over $100 billion a year on AI infrastructure and the CapEx number to the point has gone, grown much faster than the metrics we have available to us to judge the roi, which is Azure in this case. So again, what happens next? We know that Azure grew 43% in the quarter gone. And if they raise CapEx by the amount that the street forecasts, that will be capex growth in excess of 50% capex growing faster than, than, than top line growth on Azure, its key cloud unit. And that's the calculus that's been in place for a bit, quite, quite some time as it relates to this stock.

[Tim Stenovec]

Well, on that and this idea, you know, we're, you know, got listeners and viewers who are sending in questions. I mean Mandeep, when you look at Microsoft Matter, I'll throw in AAM and Qualcomm. But I think Microsoft and Meta are obviously are really key stories here. I mean, as an investor, what would, what should you be thinking about that needs to be asked of these companies right now? What clarity do you still need?

[Mandeep Singh]

I'm parsing through that Azure number to figure out how much of it is AI versus the non AI, the traditional cloud. And to my mind, based on the disclosures that they have shared, AI makes up at least 20 to 25% of that 43% growth. So from that perspective, if you, you have a business that is close to $120 $530 billion, where 25% growth is coming from AI, that's pretty sizable. Close to $30 billion in revenue. That's AI generated on an investment of around 180 billion in capex. To my mind, that's a pretty decent ROI for Microsoft with Metta. I can't do that math.

[Tim Stenovec]

Yeah.

[Mandeep Singh]

Because there is no, you know, a number in that top line. So to my mind, yes, it could be an ad pricing, but it's a guessing game. So it's just easier to parse out that AI contribution for all these cloud companies. Same thing with Alphabet, same thing with Amazon aws. There is a math that you can do to back out that contribution.

[Tim Stenovec]

So what could matter, say on a call to can they do that?

[Mandeep Singh]

I mean that first line where they say they are looking to develop enterprise businesses, to me that's the AI contribution. Once they start reporting that enterprise line. Yeah, there is your number.

[Emily Chang]

All right, we continue to get questions. This one coming from Grand Rapids, Michigan. Brian listening and watching in Grand Rapids, Michigan writes, can you comment on whether or not end users of memory and other chips are ordering from multiple suppliers in order to expedite delivery of those products? Meaning are they over ordering? And does that overstate the actual order backlog of memory chips?

[Tim Stenovec]

Ed, you want to come in on that first?

[Ed Ludlow]

Yeah, I mean on the compute side, that's the whole story that overall in the compute environment, the hyperscalers and other owners and operators of infrastructure of AI workloads have chosen to diversify multiple sources of computer GPUs from Nvidia and AMD or GPUs from Google or some of the custom inference server designs because diversifying somewhat mitigates the supply risk. And on the memory side, you know, when I was with Jensen on Friday, Jensen one, the Nvidia CEO, I think his point quite consistently has been, you know, they several years ago went to sk, Hynix, Micron and Samsung and said this is the world as we see it. In the future there's going to be a really great need for high bandwidth memory chips which are just layers of dram. The same DRAM that goes into consumer electronics and tried to get them on board to plan for that future. But in video, you know, is has a very deep relationship with sk. It's sourcing forever. It can get. And the main point that, you know, the last before I kick it over to Mandy, that Brian I've been thinking about is again what happened was the consumer electronics industry was getting dram and then suddenly there was a whole new industry data centers that wanted at its core the same thing. And who went right, where's that DRAM actually going in the end? And that's super interesting.

[Mandeep Singh]

I mean look, when your demand, if you listen to Jensen and the leaders

[Tim Stenovec]

of these Jensen spin at the White House, by the way, with the President. Yeah.

[Mandeep Singh]

And he would tell you demand is, is five to ten times more than what we can supply. So when you are in that sort of situation, the risk of double ordering to my mind is very low because we are talking, you know, are they oversupplying by 2% or 5% when everyone is saying demand is 5 to 10 times more. So I think at least in the near term, again things could change if somebody pulls back on capex like a Meta. We don't know that they have kept it intact, but maybe tomorrow they want to pull back. Then we will have a different conversation.

[Tim Stenovec]

Well, that leads us to another question. Thank you folks who are sending us questions. You just send to bloomberg.com/ask radio. This is a new functionality that we just added and I like this. I'm having fun making you all a part of our conversation. But speaking about what could happen, this is Matash in Houston saying what can Metta or Microsoft say that would drop significantly after hours? We saw the same thing with Google Alphabet on their earnings call.

[Mandeep Singh]

I mean if Matter even remotely mentions about an equity raise coming, the stock would really take a beating. Meta better. Yes.

[Tim Stenovec]

Didn't they do that last one?

[Mandeep Singh]

So it was Alphabet.

[Tim Stenovec]

That's right.

[Mandeep Singh]

An equity raise. There were rumors about Meta doing an equity raise and these companies have been issuing bonds. But imagine doing an equity raise. I don't think it will go very well with the investors.

[Tim Stenovec]

And what about for you? Mitesh asking attention Houston, where it feels like it's Houston here because it's hot and steamy in New York City. But he asked what can matter or Microsoft say that would drop significantly after hours. We saw the same thing with Google on their earnings call.

[Ed Ludlow]

Yeah, I mean you know Alphabet gave the full year capex update on the call. Right. Not in the earnings statement. So that's possible. The earnings call also represents a chance to explain things. So forgive me guys, I got not enough screen real estate. But I think matters still lower. Right. I'm going to say looking at, okay, we're down more than 6%.

[Tim Stenovec]

Yeah.

[Ed Ludlow]

And like if you think about one of the concerns with matter it was the missile margin margins and the growth in expenses. But they would also say, you know, look at the one time severance charge and the one time legal charge. Maybe they'll get to explain that, you know that these are just not issues right now. If it is indeed margins that are concerned, what I'd say is the same thing I say to my wife. If I didn't have to pay daycare, I'd buy a sports car. But I do have to pay daycare. So you know, I won't be buying the sports car. But you know, look at the EPS mess, basically relatives consensus and maybe, you know, maybe with an explanation the street will feel different about and to clarified.

[Emily Chang]

You'd buy a sports car for her, right?

[Ed Ludlow]

Exactly.

[Emily Chang]

So okay.

[Ed Ludlow]

I know the one she wants to.

[Emily Chang]

Okay. Just making sure.

[Tim Stenovec]

What a good husband. Yeah. All right. So just to you never know what's going to happen here. Microsoft up about 3.4% here in the afters, continuing to see Meta under pressure, down about 76 and a quarter percent. We've got another question coming in from Kellyanne in Maryland.

[Emily Chang]

Yeah, Caitlin writing in Microsoft just guided next year's capex 225 to 260 billion. The stock went up, Alphabet's at 200 billion, but the companies actually cash those checks. The optical and interconnect suppliers like Credo and lumentum are down 25 to 40% from their highs this month. Chinese competition explains the memory sell off. This person writes these names don't compete with xmt. So who's wrong here? Mandeep, I'm going to put this one to you. The hyperscalers writing record checks or the market selling the companies that cash them and what reconnects these stocks to their fundamentals.

[Tim Stenovec]

And Kelly, and you can come work here because that's a great question.

[Mandeep Singh]

I mean, with a lot of these components stocks, I feel like everyone has cars from how they have traded in the past.

[Public.com Announcer]

Yeah.

[Mandeep Singh]

And there is some profit taking going on. And I know I'm generalizing this, but at the end of the day, nothing has changed in terms of the demand side that you need fewer components, whether it's on the memory side or optical side. Nothing really. All these companies have been telling us is they are supply constrained. They are going to make bigger chips that can do more compute. And that's what Nvidia has been touting, that the next version will require five times more power. It can do a lot faster inferencing. That's a trend. I mean, if these stocks are getting sold off, there is some profit taking and you know, people are just going by history.

[Tim Stenovec]

Mandeep, Ed, Mandy brings up a good point because any time like Tim and I are talking about, you know, a sell off in some of the chip names, you know, you have to sometimes not all of them, but you have to pull out in perspective because the stocks overall is still up a lot this year. It was up a lot more earlier in the year. But nonetheless, there's got to be a little bit of a smart perspective on the run that some of these names have had.

[Ed Ludlow]

Yeah. I mean, but also there's no sense in saying, okay, year to date they're still up markedly. You know, look at the growth for the whole of the full year. 25. And like Nvidia is an easy example. Right. Because it is the case study of the trade. Look at where they are relative to 2022 or to 2019 or when they started as a public company. Like the gains are astronomical. Where people now, like I spend a lot of time in FA Go, which is on the terminal. You just. It's all of the financial analysis data. Look at some of the estimates for free cash flow, for example, for Nvidia next year. Like this kind of crazy, but we are in a bear market tech on a technical basis.

[Carol Massar]

Right.

[Ed Ludlow]

We've not come out of the bear market to a bull market on chip stocks because in, in a sense nothing's really changed. And Nvidia doesn't report anyway till very late in this month or August. We're not even in August yet.

[Tim Stenovec]

Almost there. Almost there. No, but we're getting closer. We're not there yet. A couple of days. All right. And we know you've got to run. Super. Appreciate it. No, no, no, really appreciate it. Appreciate it. And of course, Ed Ludlow, he is the host of Bloomberg Tech.

[Emily Chang]

I do want to go back to something. We read a question from Caitlin out in Maryland who wrote about Microsoft guiding next year's capex. We should note that Microsoft has not yet guided given an update for next year's CapEx. Mandeep, you have the most recent numbers for CapEx for fiscal year 2027 for Microsoft. Remind us where they are.

[Mandeep Singh]

Yeah, they just reported their 4Q20 fiscal year 2026. So for the 2027, I mean consensus is slightly lower, around 220 to 230 billion, but we think it'll be higher around 240 to 250 billion. So that will be at least 63%

[Emily Chang]

increase versus 2026 fiscal year.

[Mandeep Singh]

Well, I mean if you capture the 2026 number at around. And again, we don't know all these numbers they have to give guidance on, but 2027 would be slightly lower in terms of growth. Yeah.

[Tim Stenovec]

You know what's interesting? I was just doing a search Mandeep, about Microsoft and one story that just came up here after the close about Goldman gauging investor appetite for a potential $5.4 billion debt offering to help fund a Blackstone backed UTS data center tied to Microsoft. I guess my point is there is so much money going after this trade and helping to do the build out and I get a little nervous when there's just so much money floating around. What for you again going to the financial sector that's eager to get in on this and the backing is there. When does it become a little bit worrisome though?

[Mandeep Singh]

I mean when somebody misses on, you know, their debt payments. So remember all the private debt that is being raised to finance this data center build out, everyone has to make their interest payments on that debt, right? There is a bond being sold and when somebody defaults on that. And that is likely to happen when there is like lack of ROI on how much can you get by renting that data center, whether it's the actual lease on the building or you know, a full data center like Neo Clouds are doing. And when you see strains around that, that's when you know you know things because then there will be somebody who is holding that debt.

[Tim Stenovec]

Right?

[Mandeep Singh]

You know, then they may get strained. So that's when things really cascade.

[Tim Stenovec]

All right. So watching out for that stuff.

[Emily Chang]

Stay with us. More from Bloomberg Businessweek Daily Coming up after this.

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support for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on Public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public

[Ed Ludlow]

Investing Brokerage Services by Open to the Public Investing Inc.

[Tim Stenovec]

Member FINRA and SIPC Advisory Services by Public Advisors, LLC.

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[Carol Massar]

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[Emily Chang]

You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern.

[Carol Massar]

Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tim Stenovec]

All right, we have been talking of course with our Mandeep Singh.

[Emily Chang]

Let's talk Meta platforms and Meta and bring in Kurt Wagner who's been all over these numbers. He's big tech team leader. He joins us out from our west coast bureau in San Francisco. Shares of matter down 6.1% the company narrowed its full year capital spending forecast. It boosted the lower end of the 230 billion from $125 billion. But it was also the midpoint of Meta's third quarter revenue forecast. That missed analyst estimates feeds into concern that Meta's revenue is isn't climbing fast enough to keep up with its spending. Kurt, is that what is moving the stock in the after hours, those two things?

[Carol Massar]

Yeah, I think it's a combination of those things. It's, you know, with Meta, as with all these companies, as long as they're printing money and the core business is growing, they can kind of get away with this aggressive AI spending and all on all these data centers. The minute you start to worry, even if it's subtle or slight, that there might be a little bit of a slowdown on that core advertising business, now suddenly you start to question, well, you know, should you be spending so much on on all the AI infrastructure? So I think there's a combination of that. There was also a note in their release that they are raising their total year expenses. There are at least the floor of that range as well, in part because of the legal fees that they're having to incur. You may recall, I think we've talked about that they are fighting all these Legal battles around addiction and youth safety. And so they said they're spending $2.4 billion this year just on legal related expenses. And so obviously that raised some eyes. Brows.

[Ed Ludlow]

Yeah.

[Tim Stenovec]

Anytime they say it's material, right, Kurt, you gotta kind of sit up a little bit straighter because that means there's an impact and it may not be over potentially.

[Carol Massar]

No. And in fact, far from it. They have thousands of lawsuits that are waiting in the wings. They've only gone to trial for a few of them. They're settling some them. So, you know, this has the potential to be a very expensive legal dispute for them in the long run.

[Tim Stenovec]

We're saying goodbye to our Mandeep.

[Emily Chang]

He's got to go write some research.

[Tim Stenovec]

He's got to write some research. But we so appreciate him always, always.

[Emily Chang]

What are the questions that Mark Zuckerberg needs to answer specifically? I guess I'm wondering about the. The enterprise side of this and like what the enterprise opportunities could be.

[Tim Stenovec]

Yeah, give us specifics.

[Carol Massar]

Yeah, exactly. I mean, he flipped. He flipped in his opening remarks that there's potential for them to sell cloud computing capacity. That's something that we've reported on that my colleague Riley Griffin and I broke some news about earlier this month. So he is sort of confirming that that's something they're thinking about, confirming that that's a plan in the works. But I imagine he'll get some questions about that once they open the call up to analysts. I think the other thing is just, is there ultimately like a ceiling here on this spending? Obviously for 2026, we know their CapEx range, but beyond that, I mean there are hundreds of billions of dollars that he sort of earmarked for this project. Like when do they start to see the real return on that investment? And is there a limit to how much he's willing to spend? I'm sure he's not going to put a number on it today, but I also think that's the type of thing that people want to know about.

[Tim Stenovec]

Well, we've got a listener and viewer in Dubai. Assif is sending in and on that we've got this new feature cart. It's really cool. It's exclusively for bloomberg.com subscribers and terminal clients. And they've been sending questions to bloomberg.com/ask radio. But it gets into kind of just the records amount of capex that folks are spending generally when it comes to. I don't think it's necessarily specific to Metta. And he's asking someone is going to get the money. So is the marketing missing something here. Like we keep going to this, certainly with Mandeep, it's like, are we missing something? The circular financing, the spend, the roi. When you look at Metta, you know, and just generally what's going on in this spend, how do you see it when you continue to report all this stuff out?

[Carol Massar]

I mean, the best I can kind of maybe think about it is, you know, sometimes when people want to buy a house in a market and they think, gosh, this feels really expensive. And you know, the rationale is perhaps, hey, maybe five years down the line I'll look back and be very happy that I bought my house when I did because everything is going up. And perhaps that's the feeling here, right? Is that eventually everybody is going to be using these AI tools and services and needing to power these things and it feels expensive today to go build these data centers. But in five years they will be very happy they did because the demand is going to be so high that it will look like a cheap investment for them. That's got to be the rationale at this point. Now the question is, do you get to that point in five years or not? We obviously don't know the answer to that, but I have to think that, that when you're saying we're going to spend $250 billion, for example, on a single data center in Louisiana, you obviously feel that that's going to be recouped at some point. And that's only going to be possible if people adopt AI products in the way that, that someone like Mark Zuckerberg believes that they will.

[Tim Stenovec]

Can I just say though, right, this is the tough thing for all of these companies. It's like a little bit of fomo. Like, what if you miss it? What if this, this is what everybody kind of markets it as and sells it as, and it is this life changing thing that everybody's going to be

[Emily Chang]

using that makes sense for a company like OpenAI and a company like Anthropic. But Kurt, it doesn't make sense for a company like Meta because the product that they have that uses AI is the one that just keeps us glued to the screens and serves as ads, right?

[Carol Massar]

Well, Mark Zuckerberg would probably disagree. He actually, I was in the room when he had a sit down interview with our very own Emily Chang a few summers ago and he actually said, I would much rather overspend and be wrong betting on this than wake up in a few years and realize we underinvested. And so he's willing to lose a little money to make sure they're in position. Now you have to remember what's driving this a little bit for Mark Zuckerberg is that he's someone who has built his entire business on the backs of other platforms for distribution. So what I mean by that is you can't access Facebook and Instagram unless you got an iPhone or an Android phone. He's very reliant on Apple and Google in that way. I think he believes that AI is this next, you know, computing platform, whether it's it's physical hardware or not. And he does not want to have to rely on OpenAI's models or anthropic models to get his products out there.

[Tim Stenovec]

Got to make sure the eyeballs are still coming his way, I mean, essentially right and not going somewhere else. Kurt Wagner, Looking forward to all your reporters reporting ongoing on Metta platforms. Super. Appreciate it. Kurt Wagner is Bloomberg News Senior Tech Reporter, I actually think. Did he get a title?

[Emily Chang]

Oh, he's big tech team leader.

[Tim Stenovec]

You are Big Tech Team leader. Good stuff.

[Carol Massar]

This is the Bloomberg businessweek Daily Podcast, available on Apple, Spotify and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5pm Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business App. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.

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