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Thu. 01/30 – Everyone Reports Earnings But Wall Street Only Wants Capex Answers.
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Brian McCullough
Welcome to the tech meme. Right home for Thursday, January 30, 2025. I'm Brian McCullough. Today, Meta and Microsoft reported earnings, but all Wall street cared about was getting capex updates. Meta settles with the President. Waymo's expansion continues apace. Why Masa San is the perfect white knight for OpenAI and AI is copyrightable here's what you missed today in the world of tech. Here's a roundup of Microsoft earnings in just a couple minutes. Microsoft reported Q2 revenue up 12% year on year to $69.6 billion. Microsoft 365 Commercial Products and Cloud Services revenue up 15% year on year and Net Income up 10% year on year to $24.1 billion. LinkedIn revenue up 9% Intelligent Cloud revenue up 19% Azure up 31%, though that did show a lower growth trajectory. Stock is down low 1% pre market, but I think the entire market is sort of mixed. This morning it had been down 4.5% overnight. Suddenly the all important thing was this. Microsoft said Q2 capital expenditures hit $22.6 billion versus 20.95 billion estimated and forecast that Q3 Azure growth between 31 and 32% versus 33% expected. So they're spending more than expected on data center and AI investments. But growth in that business is not as much as some were expecting, quoting Reuters. Despite beating quarterly overall sales estimates, investors want better results from the hundreds of billions of dollars that Wall street heavyweights have been spending to build AI data centers and infuse their products with the emerging technology. For more than a year, Microsoft and its big tech peers have tested Wall Street's patience by plunking down huge amounts of cash in pursuit of profits from AI that have yet to satisfy investors. It's okay if that is a few years out, three to five years into the future, said Brian Mul, portfolio manager at Zacks Investment Management. But we really want to start to see a clear roadmap to what that monetization model looks like for all of the capital that's been invested. On a conference call with investors, Chief Executive Satya Nadella said costs were coming down with models showing 10 times better performance for the price. As Microsoft irons out the algorithms, as AI becomes more efficient and accessible, we will see exponentially more demand, nadella said. End quote. Indeed, Nadella said Microsoft's AI business has surpassed an annual revenue run rate of $13 billion, up 175% year on year. But I guess we're arguing over the definition of things here, quoting GeekWire for the quarter, Microsoft reported capital expenditures of $22.6 billion, a new record high. Citing the need to continue increasing capacity to meet demand for its cloud and AI offerings, Microsoft said Tuesday that it has added DeepSeek R1 to the third party AI models available via its Azure AI foundry and GitHub software development platform. Microsoft said its commercial bookings rose 67% year over year, foreshadow an increase in future revenue. The company said the increase was due in part to new azure commitments from OpenAI. The AI startup and ChatGPT maker signed a new large Azure commitment as part of recent changes in their partnership agreement. End quote Meta Earnings in just a few quick minutes, Meta reported Q4 revenue up 21% year on year to $48.4 billion net income up 49% year on year to 20.8 billion family daily active people up 5% year on year to 3.35 billion people on average for December 2024. Mark Zuckerberg said Threads has 320 million monthly active users, up from 275 million in November 2024, and is adding more than 1 million daily signups. But with Meta like Microsoft, all the attention was on capex spending, something that investors have been on Meta's back about for a while now. Remember the whole Metaverse thing? Well, Meta's reality Labs posted Q4 revenue, up 1% year on year to $1.1 billion and a $4.97 billion operating loss, versus a 5.4 billion estimated loss. So that looks good, right? It also means, though Reality Labs has lost more than $60 billion since 2020. Quoting CNBC, Meta said last week it would invest between 60 and $65 billion in 2025 capital expenditures to expand its computing infrastructure related to art. Zuckerberg has previously said AI is core to the company's Metaverse efforts, including its Ray Ban Meta smart glasses. Meta develops that device with France based Essilor luxottica. Zuckerberg said spending heavily on AI infrastructure is a strategic advantage and vowed Meta will invest hundreds of billions in AI over the long term. Quoting TechCrunch, Zuckerberg already announced last week that Meta would spend more than $60 billion in 2025 alone on capital expenditures, primarily on data. In response to an analyst question about Deepseek's impact on Meta's AI spending, Zuckerberg said spending heavily on AI infrastructure will continue to be a strategic advantage for Meta. Meta considers Deepseek a new competitor and is learning from it, but it's way too early to tell if demand for chips will stop increasing, as they remain crucial for inference purposes, zuckerberg said, noting that Meta has billions of users at this point. I would bet that the ability to build out that kind of infrastructure is going to be a major advantage for both the quality of the service and and being able to serve the scale that we want to, zuckerberg said. Meta's goal with Its next model, Llama 4, is to make it the world's most competitive, even compared to closed models like ChatGPT, Zuckerberg said. He added that he expects it to have agentic capabilities, something both OpenAI and Anthropic have moved into, along with multimodal ones. Our goal with llama3 was to make open source competitive with closed models, he said. And Our goal for llama4 is to lead, end quote. This is Meta related the company has agreed to pay around $25 million to settle President Trump's 2021 lawsuit against Meta and Mark Zuckerberg personally after the company suspended his accounts following the January 6 riot, quoting the Wall Street Journal off that $22 million will go toward a fund for Trump's presidential library, with the rest going to legal fees and other plaintiffs who sign on to the case. Meta won't admit wrongdoing. The signed the settlement agreement Wednesday in the Oval Office. A Meta spokesman confirmed the settlement. Serious talks about the suit, which had seen little activity since fall 2023, began after Zuckerberg, Mehta's chief executive, flew to Trump's Mar a Lago Club in Florida to dine with him in November, according to the people familiar with the discussions. The dinner was one of several efforts by Zuckerberg and Mehta to soften the relationship with Trump and the incoming administration. Mehta also donated $1 million to Trump's inaugural fund last year. Trump warned that Zuckerberg could go to prison if he tried to rig the election against him. Toward the end of the November dinner, Trump raised the matter of the lawsuit. The people said the president signaled that the litigation had to be resolved before Zuckerberg could be brought into the tent. One of the people said, end quote. I told you once they had the model down, it's just like a franchise thing. Just open the franchise in the next town and the next town and the next town. Waymo announced plans to test AVs in 10 new US cities in 2025, starting with Las Vegas and San Diego as it plans Robotaxi operations in Austin, Atlanta and Miami soon. Quoting the Verge the vehicles will be manually driven and the testing operations are not necessarily a precursor to the launch of a commercial robotaxi service. They're also not precluded from launching a service either. Rather, the Alphabet owned company views these road trips as an opportunity to see how well its self driving system adapts to new locales with varying weather conditions and regional driving habits. So what we're looking for is places that are going to challenge our system and look very, very different, said Nick Rose, product manager for Waymo's expansion efforts. Las Vegas is pretty interesting because I mean, if you've ever been to Vegas, it's pretty unique. Among a lot of US Cities, Las Vegas is known for its dense traffic and chaotic drop off zones outside of hotels and popular casinos along the Strip. The streets also have what's known as bots, dots instead of painted lane lines, and the street layout is often derided as an absolute mess. Several autonomous vehicle operators have already set up shop there, including Amazon's Z, which plans on launching a public rideshare service later this year. San Diego, in comparison, is similar to the cities where Waymo already operates, Rose said. What we want to validate is that the system performs well in San Diego without having a ton of prior driving information there, he added. Waymo has said it plans on launching robotaxi operations in Austin, Atlanta and Miami in the near future. Last year, Waymo sent vehicles to a variety of locations, including Truckee, California, upstate New York and Michigan in search of winter weather conditions in which to stress test its robot cars. This year, the theme is generalizability, how well the vehicles adapt to new cities after having driven tens of millions of miles in its core markets of San Francisco, Phoenix and Los Angeles. Ideally, the company is trying to get to a point where it can bring its vehicles to a new city and launch a robotaxi with a minimal amount of testing as a preamble. When we go to a brand new city in the US there are things that are subtly different, rose said. And we want to see how well the driver performs on those things out of the box without having to retrain or make adjustments. End quote. So it's a new year, 2025, and you're thinking, how am I going to make this year different? Shopify is how you're going to make it happen. And let me tell you how Shopify makes it simple to create your brand open for business and get your first sale, get your store up and running easily with thousands of customizable templates, no coding or design skills required. All you need to do is drag and drop Shopify makes it easy to manage your growing business too. 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Sources are telling the Financial Times that SoftBank is in talks to invest 15 to 25 billion dollars in OpenAI on top of its more than 15 billion dollars commitment to Stargate. The deal would make SoftBank OpenAI's biggest backer. So again, are we watching the slow motion divorce between OpenAI and Microsoft Play out in real time? See, here's the thing. OpenAI wants more compute wants compute from everybody wants to control its own compute resources, but it' handcuffed to Microsoft for compute. Microsoft wants to own its own AI tech and its AI branding. It doesn't want to essentially be renting the AI Halo from OpenAI. I think a parting of ways is inevitable, though it doesn't necessarily have to be acrimonious and Masa San is the perfect white knight here. Quote Ultimately, the Japanese company could spend more than $40 billion on its partnership with OpenAI. The talks are ongoing and the amount that SoftBank could invest in primary equity into OpenAI is a moving target, said one person familiar with the matter. OpenAI is also to invest about $15 billion in Stargate. SoftBank's equity investment in OpenAI could cover the latter's commitment to the USAI infrastructure project, according to several people with direct knowledge of the deal. An investment of $15 billion or more would make the Japanese investor OpenAI's largest single backer. Microsoft, which first invested in OpenAI in 2019, is the startup's biggest shareholder. San has spent years courting Altman as the tech investor seeks to establish himself as a player in the development and advancement of AI. The Japanese billionaire sees obtaining a larger stake in OpenAI as the centerpiece of a broader strategy to fulfill his self stated mission to bring about so called superintelligence technology that surpasses the cognitive abilities of humans. SoftBank's potential investments in Stargate and OpenAI have been in discussion for months. If Son spends $40 billion or more, it would be one of his biggest ever investments, eclipsing the $16 billion that SoftBank injected into failed office space group WeWork end quote the US Copyright Office says using AI tools to assist in creative processes doesn't compromise copyright protections as long as the content has human authorship. Quoting Variety the announcement clears the way for continued adoption of AI in post production, where it has become increasingly common, such as in the enhancement of Hungarian language dialogue in the brutalist studios whose business model is founded on strong copyright protections, have expressed concern that AI tools could be inhibited by regulatory obstacles. In a 41 page report, the Copyright Office also reiterated that human authorship is essential to copyright and that merely entering text prompts into an AI system is not enough to claim authorship of the resulting output. This is the first time the Copyright Office has weighed in on the issue since March 2023, just a few months after the release of ChatGPT. The report broadly aligns with the Office's earlier positions, though it offers greater assurance of AI legitimacy when used to supplement the creative process. The use of AI tools to assist rather than stand in for human creativity does not affect the availability of copyright protection for the output, the report states. Consistent with its earlier guidance, the Office also held that a work is eligible for copyright protection if the author creatively selects and arranges AI generated elements. Copyright protects the original expression in a work created by a human author, even if the work also includes AI generated material. The report states End quote and more on Artist and AI the Authors Guild has launched a project for writers to certify their books as human authored and not AI generated, initially for members and single author books. According to the Guild, this Human Authored verification system is designed to help writers differentiate their creations in a marketplace increasingly filled with AI content, while ensuring readers can identify the origin of the books they consume. A publicly accessible database will maintain records of Human Authored certifications. The initiative was originally revealed in October as a response to the growing proliferation of AI generated publications appearing on platforms like Amazon and its Kindle Ebook service. Currently, certification is limited to Authors Guild members publishing solo works, though plans exist to extend the program to include non guild members and collaborative projects. To receive the Human Authored designation, works must be predominantly written by humans, though small allowances are made for AI assisted tools like grammar and spell checking software. Quoting the AP According to the Guild, authors can have their work certified by logging into the portal, entering information about their book, and signing a licensing agreement that will enable them to use a specifically designed logo on book covers, spines or promotional materials. The Guild plans to register the Human Authored logo with the US Patent and Trademark Office and eventually open the system to non members. End quote. The Human Authored initiative isn't about rejecting technology, it's about creating transparency, acknowledging the reader's desire for human connection and celebrating the uniquely human elements of storytelling, guild CEO Mary Razenberger said in a statement. Authors can still qualify if they use AI as a tool for spell checking or research, but the certification connotes that the literary expression itself, with the unique human voice that every author brings to their writing, emanated from the human intellect. End quote. I believe I am still a member of the Author's Guild. I don't know. Anyway, I've gotten sick again for the second time in a month. Don't know if you heard it in my voice yet. I was up all night with coughing attacks, couldn't fall back to sleep so ended up taking a warm bath because I was getting the shivers badly and I ended up reading on my Kindle for a couple of hours. So you get to benefit from that because here are two things I learned last night. Number one, you'd think that when steamships and steel came about that new tech replaced sails and wooden ships right away, right? Well, apparently not as late as 1880. 60% of the British merchant fleet and they had like 90% share of trade on the seas at that point was still sailing ships, wooden ships. Why? Because they were more cost efficient. Number one, they didn't need fuel. Duh. Number two, it turns out having masts and sails and rigging requires less personnel to operate a ship than having engineers and coolies and such. So you could run a sailing ship with a smaller crew cheaper. And it turns out all the coal and the engine and such took up so much room in a ship it cut into your carrying capacity. So you could just carry more goods on a wooden sailing ship. It wasn't until things switched to oil and ships got huge that the economics actually shifted. That was number one and then number two. You know that song Down Easter Alexa by Billy Joel? Ever wondered what a downeaster is? I'm here to tell you. Aside from being a slang term for a person from Maine, the Down Easter was a type of 19th century sailing ship built in Maine and used largely in the California grain trade. It was a modification of the clipper ship ship using a similar bow but with better cargo handling. It was also the style of a lobster type fishing boat used on the east coast of the U.S. but the key is Maine, which is downwind and east of Boston. Thus a Down Easter. There you go, the fruits of my insomnia. You're welcome. Talk to you tomorrow.