Ejaaz: Yesterday, four of the five most valuable companies in the world reported the
Ejaaz: biggest earnings in tech history within a 90-minute window.
Ejaaz: And now, we have a pretty good idea of whether we're in an AI bubble or not.
Ejaaz: Google, Amazon, Meta, and Microsoft reported their Q1 quarterly earnings,
Ejaaz: and it blew every single Wall Street analyst's expectations out of the water.
Ejaaz: Seriously, these numbers are pretty insane.
Ejaaz: Google's earning per share was rated 94% above expectations. That's not a typo.
Ejaaz: 94%. And every single cloud business, AWS and Google Cloud reported revenue
Ejaaz: increase average of 50%, with Google having back orders of half a trillion dollars
Ejaaz: worth of compute orders.
Ejaaz: Even Meta, who's categorically been behind in the AI race, reported massive
Ejaaz: growth in revenue for their ad business thanks to AI.
Ejaaz: In fact, it's so good that they're beating Google at their own business of search advertising.
Ejaaz: For two years, AI critics have constantly been saying that we are in an AI bubble.
Ejaaz: They're saying the house of cards is going to come down, that we're spending
Ejaaz: too much. The earnings reports of yesterday proved the exact opposite.
Ejaaz: All these companies that are spending hundreds of billions of dollars are actually
Ejaaz: making more money than they ever did before.
Josh: So are we in a bubble? The answer to that question is probably unequivocally yes.
Josh: I think we are to some extent, but what is the size of that bubble?
Josh: Chances are it's much smaller than i think a lot of people think and how
Josh: much runway is left well i think a lot more than people anticipate and
Josh: we could start with google because that's what you're mentioning a lot i mean their earnings
Josh: report showed we got to start with the capex number so for those
Josh: who aren't familiar with capex capex is the capital expenditure the amount of
Josh: money that a company is going to spend over the next x period of time now for
Josh: google they've provided capex for their next calendar year and they guided even
Josh: higher than they did previously at $180 to $190 billion.
Josh: This is a tremendous amount of money, like a stupid, crazy amount of money.
Josh: Their revenue, for reference, $110 billion, is more than Coca-Cola's annual
Josh: revenue. And this is what they did in a single quarter.
Josh: One of the most kind of worried about and concerned about categories, Google search.
Josh: I mean, I remember a few months ago, very vividly, we were on the show
Josh: talking about Google search and whether or not it's going to be a viable business
Josh: is the chatbot llm interface going to cannibalize google search the answer now
Josh: is an unequivocal no google search grew 20 to 60 billion dollars which is again
Josh: just a huge amount of money and i think that the headline here is that
Josh: Capital expenditure is going up, meaning the money is going to be spent on building
Josh: out the infrastructure required to scale AI at the same time that they're actually
Josh: generating a lot more profits from their services like Google search and Google cloud.
Josh: I think one of the themes we're going to notice as we cover these earnings reports
Josh: is that cloud revenue is kind of the bread and butter of a lot of these companies.
Josh: And it's accelerating very quick.
Josh: I mean, for their projected guidance on their cloud revenue that they're going
Josh: to make next year, they doubled it to about $460 billion.
Josh: And for reference, that's larger than the GDP of Belgium and roughly equivalent
Josh: to two of Walmart's annual revenues just in cloud search alone.
Josh: So the Google numbers are incredible.
Josh: The one thing that really sent me for a loop in terms of how I kind of calculate
Josh: the guidance of where we are in this AI bubble is a line that Sundar said in the earnings report,
Josh: CEO of Google, who said their 2027 CapEx will significantly increase Yes.
Josh: In 2027, next year, compared to this, which is already a record.
Josh: So they are really guiding towards a very strong 2026, a strong 2027.
Josh: And that was one of four that really made a pretty big impact on the market.
Ejaaz: Well, I just want to tell a slightly different story on the Google side,
Ejaaz: because really, it's that cloud business that absolutely killed it.
Ejaaz: They made $20 billion in the last three months for guidance here,
Ejaaz: that's around 63% more than they did this same time last year.
Ejaaz: So it's a massive jump up. But then you might be wondering, well,
Ejaaz: how amazing is this? How substantial is this?
Ejaaz: The projections that you just mentioned, the half a trillion dollars,
Ejaaz: so it's actually $462 billion, I believe, is already locked in orders.
Ejaaz: It's not a projection. These are orders that they already have on the backlog.
Ejaaz: And people are waiting for this to happen. In fact, I have a neat little graphic,
Ejaaz: which shows this because this caption goes, this is so crazy,
Ejaaz: it literally looks fake.
Ejaaz: And it shows you the back orders, $460 billion just for Google Cloud alone.
Ejaaz: This is one of like eight different major business units that feed into the Google profit funnel.
Ejaaz: So I just want to emphasize that. Now, Sundar also said on the call,
Ejaaz: we, and I'm quoting this, we are compute constrained in the near term.
Ejaaz: Our cloud revenue would have actually been higher if we were able to meet the
Ejaaz: demand. So the point is, they don't have enough supply TPUs and infrastructure,
Ejaaz: which is, by the way, Google Cloud is one of the biggest cloud providers in the entire world.
Ejaaz: I think they're like second to AWS, Amazon, which is the biggest one,
Ejaaz: which we'll talk about in a second.
Ejaaz: They can't supply enough. Google is like one of the biggest hyperscalers that
Ejaaz: are out there, and even they can't meet demand. So the point is...
Ejaaz: The criticism that we're faced around AI bubbles is we're investing in all this AI capex.
Ejaaz: Google alone is investing, I think, $150 to $200 billion this year to create
Ejaaz: more TPUs and AI infrastructure to supply the demand.
Ejaaz: The skepticism has been that there is no demand for this. No one's willing to pay for this.
Ejaaz: These quarterly earnings prove that categorically incorrect.
Ejaaz: And we have a half a trillion dollar backlog.
Josh: Yeah, there's no way that the spending is going to slow down.
Josh: And the fact that the only constraint that they had was compute,
Josh: not demand, given the profit margins that they already have is pretty telling.
Josh: I found one funny fact about this is that a lot of the revenue actually came
Josh: from their private investments getting marked up.
Josh: So of their total net income of $62 billion, 37 of it was unrealized gains on
Josh: equity securities that includes companies like SpaceX and Anthropic.
Josh: You mentioned the largest cloud provider, Amazon, who also reported yesterday.
Josh: They have a similar thing where I think of their net income of $30 billion,
Josh: 16.8 of it was their pre-tax gains on Anthropic shares.
Josh: So this is very much a circular economy where like they're investing in Anthropic,
Josh: the Anthropic valuation is rising, a large percent of the net income becomes
Josh: Anthropic, becomes SpaceX.
Josh: So earning season when those IPO is going to be pretty crazy,
Josh: but we have to talk about Amazon.
Josh: Their AWS services is up 28%, which is their fastest growth they said in 15
Josh: quarters that's 150 billion dollar run rate to put that in context that's larger
Josh: than the entire annual revenue of disney netflix and spotify combined
Josh: And that's AWS alone. It's bigger than the entire global movie industry at a
Josh: margin of almost 40%. So again, this is the same story we heard with Google.
Josh: Their cloud is really just constrained by compute. Their margins are high.
Josh: They have more demand than they ever had before.
Josh: And now we're seeing them move into building their own chips and working with other companies.
Josh: And now that OpenAI is not locked in with Microsoft, we're seeing them start
Josh: to serve OpenAI infrastructure as well through their bedrock.
Josh: It's a really impressive range report from Amazon as well.
Ejaaz: There's been a trend shift with Amazon in particular.
Ejaaz: Now, if you talk to an average person about Amazon a few years ago,
Ejaaz: they'd be like, oh, yeah, it's that e-commerce company. It's where I order my toilet paper from.
Ejaaz: Amazon has undergone a very categorical shift into the compute infrastructure
Ejaaz: and distribution service.
Ejaaz: Now, that sounds like a lot of buzz terms. Let me explain what that means.
Ejaaz: AWS is basically the bedrock for any internet company that exists today.
Ejaaz: If it runs online, it's most likely running off of Amazon's AWS servers.
Ejaaz: And so what that means is, okay, you can run a website, you can service all
Ejaaz: the requests that you have from people trying to buy stuff from you.
Ejaaz: But with this recent AI shift, Amazon looked at it and thought, huh.
Ejaaz: This looks really similar. We could be the distributor and infrastructure providers for AI.
Ejaaz: And guess what they already had? A bedrock of customers that already had that.
Ejaaz: And I use bedrock very specifically, by the way, because their main AI part
Ejaaz: is literally pun very much intended, was called or is called Amazon Bedrock.
Ejaaz: And just over the last week, they now officially are going to be the main distributor
Ejaaz: for OpenAI's chat GPT models.
Ejaaz: Now, the reason why that's a big thing is because Microsoft was the sole cloud provider for OpenAI.
Ejaaz: But this week, that contract broke, which meant that OpenAI can now serve their
Ejaaz: models through whatever distributor they want.
Ejaaz: And the first door that they were knocking on was Andy Jassy at Amazon saying,
Ejaaz: hey, we would love to be the main provider. Why?
Ejaaz: Because Amazon has connections to all the enterprise companies.
Ejaaz: They service all the government's AI requests and all the Fortune 500 companies' AI requests.
Ejaaz: They run all the servers. No one wants to pick the model. No one wants to set
Ejaaz: up the dev environment. AWS has got you and they are creating a crazy business
Ejaaz: for this. Like you mentioned, 28% growth.
Ejaaz: That's almost $40 billion they've made over the last three months.
Ejaaz: The fastest growth in the last four years.
Ejaaz: That is not an anomaly because in Q4, we were saying the same thing when we
Ejaaz: were reporting on their earnings as well.
Ejaaz: And it's good to see that the market is now finally starting to understand that.
Ejaaz: And they, this week, actually breached their all-time highs.
Ejaaz: I think it breached over $260 price per share, which is insane.
Ejaaz: And the final point I want to make about Amazon and Google, actually,
Ejaaz: is there's a common theme.
Ejaaz: Now, if you look at total revenue earned by both of these companies, it's increased...
Ejaaz: By a decent amount, but not like mind-blowing amounts.
Ejaaz: Where you need to look is the profit margins that both of these companies have
Ejaaz: made over the last three months.
Ejaaz: That has expanded on average by around 50%. I wanna reemphasize that point.
Ejaaz: 50% for their cloud businesses, which means that AI chips, which is what both
Ejaaz: Google and Amazon provide, and their cloud services allows them to eat more
Ejaaz: profit on the margins, which is very good if you're any kind of a shareholder
Ejaaz: of either of these companies.
Josh: Yeah. And the pricing elasticity is very high too. It's not like they are out
Josh: of customers. They just don't have the compute.
Josh: So theoretically they could raise these prices, increase those margins quite
Josh: a bit. And people will still continue to pay.
Josh: Like I know for a fact, like someone like open AI can double the cost to serve it.
Josh: And Amazon could forward that onto the customer. People would still pay.
Josh: And Amazon's CapEx, again, at $200 billion.
Josh: To put that into perspective, it's larger than the entire annual
Josh: CapEx of the US oil and gas industry
Josh: like this is a huge amount of money
Josh: and then we have one other quote from the earnings report
Josh: which i thought was was fun it was uh andy jassy
Josh: talking about the combination of their industry-leading price
Josh: performance tranium custom silicon market leading
Josh: gravitons cpus and their core aws he's
Josh: basically describing as a once-in-a-lifetime opportunity he said amazon and
Josh: his shareholders will be very well off in the future as amazon
Josh: crossed a new all-time high so it's very exciting
Josh: to see all of these numbers go up and we don't even we didn't
Josh: even talk about their logistics business like the part of
Josh: amazon that we interact with on a daily basis when you order groceries or order
Josh: things from amazon it's just an unbelievable business there's like 10 different
Josh: businesses and i think that's the theme of a lot of these larger mega cap companies
Josh: is as they take as they have their cash flow coming in they're going to spend
Josh: it efficiently and they're going to increase their margins elsewhere what an
Josh: incredible business well well
Ejaaz: Let's speak about the cash flow for a second because we sound very rosy right
Ejaaz: now and that it's like the best companies in the world. Now,
Ejaaz: I want to point out two things.
Ejaaz: As of the end of Q1, Amazon has now spent around or committed to spending 94% of their free cash flow.
Ejaaz: We're talking about like money that they have available coming in through operating
Ejaaz: income and through money that they have on the cash balance sheet.
Ejaaz: Out of the four companies that we're speaking about today, they are the most
Ejaaz: aggressive spenders on AI infra.
Ejaaz: And the bet that Andy Jassy, the CEO, was making was, we're doing this intentionally
Ejaaz: because we know for a fact that we're going to make money from this.
Ejaaz: And the projections or the reported earnings from Q1 has proven that exact point,
Ejaaz: but it's still a very aggressive maneuver, right?
Ejaaz: Like as of the next three months, you could argue that either if they don't
Ejaaz: have enough money or they run into some kind of hurdle, they might need to start
Ejaaz: having debt financing and start borrowing money.
Ejaaz: Now, as of today that we're speaking about and reported on these earnings,
Ejaaz: they aren't in a levered position.
Ejaaz: So for everyone saying that we're in an AI bubble, an AI bubble by definition
Ejaaz: means that these companies are levered up on their balance sheet.
Ejaaz: Neither of the companies that we're talking about today, Google,
Ejaaz: Amazon, and Meta and Microsoft, which we're about to, are levered.
Ejaaz: So I disagree with your earlier point, Josh, because basically,
Ejaaz: I don't think we're in a bubble yet. Big, big emphasis on yet.
Josh: Well, I think we're definitely aligned on being bullish about where we are in
Josh: this stage of the market, whatever it is, that there's a lot of runway left.
Josh: But there's an interesting dynamic to that point around free cash flow,
Josh: which is the money that basically is left over after all their expenses,
Josh: A lot of that is flowing out.
Josh: Like you mentioned, about 95% of Amazon's earnings, the free cash is flowing out. And this
Josh: is kind of inverting what we've traditionally had in the markets.
Josh: Generally, Amazon, Google, these companies have absorbed all of the cash and
Josh: they have a tremendous amount of free cash flow.
Josh: Now they're spending it. You're seeing a lot of money going out the door.
Josh: The capex is between the four companies we're going to cover is what,
Josh: 600, 700 billion dollars.
Josh: The question is like, where is that money flowing to? Because the reality is
Josh: that while cash flow is coming out of Amazon, it is finding its way into other companies as well.
Josh: And we're starting to see this with companies like Bloom Energy,
Josh: who we famously mentioned on the show a few months ago and then a few weeks
Josh: ago and still have not filled large enough bags to see the upside of this,
Josh: which is very frustrating.
Josh: But Bloom Energy is up 1400% on
Josh: the year. And this is one example of where that free cash flow is going.
Josh: When companies are building, they're spending this capex, they need to create
Josh: data centers, they need the shell, they need the energy, they need the chips.
Josh: Bloom Energy is an energy part of that equation. And it's clearly captured a
Josh: lot because it was just up 24% yesterday on huge earnings.
Josh: And now Leopold, in the most recent 13F filing, he had a position of 875 million,
Josh: is now in a position worth $2.7 billion.
Josh: This is one example of the money. The other, I guess we have SanDisk that we
Josh: should probably mention briefly.
Josh: If you invested in SanDisk two years ago, you're up 30 times your money.
Josh: Like 30X, every $1,000 you put in is $30,000. Why is that?
Josh: Well, because one of the critical thresholds and something that we heard on
Josh: all of the four earnings reports that we're gonna mention is that memory is
Josh: a serious supply constraint.
Josh: And the costs associated with that are going up and the companies are just absorbing that.
Josh: I think it was maybe Amazon or Meta who added $25 billion in CapEx just for
Josh: the increased cost of these goods.
Josh: And companies like Sandisk are the ones that are absorbing those.
Josh: So we're seeing for the first time in a while, the money flowing downhill from
Josh: these like mega cap companies down into the core infrastructure.
Josh: And I think that's an inversion that hasn't quite been priced in because it
Josh: hasn't been that way in a really long time.
Ejaaz: Exactly. And so the theme that we've spoken about for the companies so far,
Ejaaz: Google and Amazon, has been very much on AI CapEx spending, on Google Cloud,
Ejaaz: on Amazon Web Services, and whether there is customer demand for the infra.
Ejaaz: Now, another company that we want to speak about today is Meta.
Ejaaz: And in fact, they're the company that added an additional $35 or $25 billion
Ejaaz: for CapEx to their CapEx spend this year.
Ejaaz: They're playing in a bit of a different field. Like, Meta is,
Ejaaz: for better or worse, a social media company, but they're really,
Ejaaz: really good at making money from advertising.
Ejaaz: And for the longest period of time, it's been Meta versus Google.
Ejaaz: And Google has, quite frankly, always won. They're the doormat to the internet,
Ejaaz: right? They have dominated search.
Ejaaz: And Meta has come close, but never quite as close, right?
Ejaaz: Except for the last three months where they started integrating AI,
Ejaaz: specifically their newer models and Manus who they acquired for $2 billion,
Ejaaz: which just got blocked by China.
Ejaaz: And that's a whole other thing. You should go check out our episode that we
Ejaaz: published earlier this week.
Ejaaz: The point being is Meta started integrating AI and they started having higher AI search conversions.
Ejaaz: Now, I need to make it very clear. SEO, search engine optimization,
Ejaaz: is a huge business and companies and advertisers pay billions and billions of
Ejaaz: dollars per year just to get access and put their product in front of the right profile of person.
Ejaaz: Meta is pioneering the AI version of that. And we were kind of in the dark.
Ejaaz: They were kind of behind on the AI race. They don't have a frontier model.
Ejaaz: So we didn't know whether they could actually pull this off.
Ejaaz: And the data has shown that they can.
Ejaaz: They beat earnings per share by 53%, and their revenue is up 33% year over year,
Ejaaz: which is just categorically very impressive.
Ejaaz: And I think we're going to start to see more of these things happen with other
Ejaaz: such companies, Google being the most obvious one, where everyone thought AI
Ejaaz: was going to eat into their search revenue, and they're up 20% over the quarter.
Ejaaz: So overall, I think Meta, and it's not just an AI CapEx infra thing.
Ejaaz: It's also AI bleeding into every single other type of product category and also making them money.
Ejaaz: So the demand for this thing, for this technology is insatiable.
Ejaaz: And the lesson that I'm hearing from all these three companies that we've spoken
Ejaaz: about so far is there's not enough compute to go around.
Josh: Okay. So Ijoz, I'm hearing you say all these positive things about meta,
Josh: and then I'm looking at the stock today and it's down 9%. So clearly there's
Josh: a disconnect between the market and the numbers. And we've seen this before.
Josh: People sell on the news, even when it's good sometimes.
Josh: But do you have any ideas as to why this is happening?
Ejaaz: I think Meta's been getting a lot of hate, justifiably, because they've made
Ejaaz: a few different blunders.
Ejaaz: We mentioned on a previous episode that Zuck has.
Josh: Gone on an
Ejaaz: Acquisition spree and barely any of them have paid off. And his most recent,
Ejaaz: most successful one is now getting unwound and blocked by China.
Ejaaz: So it's not a good streak for him in general. But I think the market reaction
Ejaaz: is specifically because advertising in itself is more of a variable business
Ejaaz: versus something as hard to find as compute.
Ejaaz: You have recurring customers with compute, with AWS, with Google Cloud.
Ejaaz: You have contracts that you sign, long-term contracts with these enterprises,
Ejaaz: and you know they're going to keep coming back. With advertising,
Ejaaz: it's kind of like, do you think Google.
Josh: Is going to create
Ejaaz: A better AI search optimization system next quarter? Maybe.
Ejaaz: And I think the meta FUD is just oversold at this point. I think people are
Ejaaz: looking at it as a social media company versus an advertising business.
Ejaaz: And if I were a meta investor right now, I'd probably be adding on to my position.
Josh: Yeah, it may be helpful for people to reconsider these companies because a lot
Josh: of the times the way that they interface with these companies is through the consumer layer.
Josh: It's like on Amazon, you're interfacing with their Amazon mobile app.
Josh: On Meta, you're interfacing with Instagram or Facebook. But the reality is,
Josh: is that there's huge businesses built on the backs of these that is far larger
Josh: than the actual core business that you're interfacing with on a daily basis,
Josh: which is interesting. Now, Meadow was perhaps the biggest loser today,
Josh: just in terms of price performance.
Josh: The second biggest loser was Microsoft.
Josh: Now, Microsoft should surprise no one. They're having a little bit of a difficult
Josh: time when it comes to kind of being at the forefront of AI, but not in terms
Josh: of their cloud or their infrastructure.
Josh: Because like everyone else, they have more demand than they know what to do with.
Josh: They have incredibly high margins and they're doing really well,
Josh: pretty much across the board. They generated great numbers.
Josh: One of the things that I think surprised investors, perhaps the reason
Josh: why it's down today is because this capex number it grew
Josh: to 190 billion for the calendar year
Josh: of 2026 and that includes 25 percent boost
Josh: from previous estimates because of this higher component pricing
Josh: now for reference for framing that's more than the gdp of greece it's more in
Josh: the annual capex of boeing lockheed martin and general motors combined basically
Josh: the entire defense industry so it's a tremendous amount of spending on a business
Josh: that i think a lot of people are a little confused on They had some issues recently
Josh: with the Microsoft and opening a restructuring.
Josh: The partnership agreement that happened earlier this week, it sucks down a little
Josh: bit, but it seems overall, as long as Microsoft is leaning into their cloud
Josh: infrastructure, they're going to be okay.
Ejaaz: Yeah, I think I relatively agree. Okay, so the reason why I say relatively,
Ejaaz: their cloud business, Azure, is a beast. It's up 40%.
Ejaaz: They're printing money. They're just not printing as much money versus their
Ejaaz: competitors, which happened to release their same earnings report within the
Ejaaz: same 90 minutes. window, right? So AWS,
Ejaaz: blew them out the water. And they are like the biggest car business.
Ejaaz: So if you're a smaller car business, such as Microsoft Azure,
Ejaaz: you kind of want to be putting up bigger percentage increases. This wasn't the case.
Ejaaz: Google Cloud also crushed them as well. So comparatively, if you were looking
Ejaaz: at all three businesses, even though Microsoft's stat statistical increase is
Ejaaz: better, you're probably going to want to buy Amazon and Google over this.
Ejaaz: But that might also be an opportunity for you.
Ejaaz: The other reason, and I want to put my bear hat on for a second with Microsoft.
Ejaaz: Josh, what's the name of the AI leader at Microsoft?
Josh: Copilot?
Ejaaz: No, I mean the person that leads the AI team. Oh, I have no idea.
Ejaaz: Exactly. That's my point.
Josh: Not a clue.
Ejaaz: So the leader of AI at Microsoft, I believe his name is Mustafa Saleman,
Ejaaz: just has been sitting at the helm and not really delivering on the products that you would expect.
Ejaaz: And like Anthropic, OpenAI, and even Google have been absolutely running circles
Ejaaz: around them, right? So remember, Microsoft CoPilot and the OpenAI partnership
Ejaaz: were the earliest partnerships that you could make.
Ejaaz: Microsoft, best investor in the room here, put in $13 billion into OpenAI,
Ejaaz: and it is currently worth $132 billion, 27% stake in OpenAI.
Ejaaz: And even with that, what is it, a year and a half lead across any of the competitors,
Ejaaz: they still couldn't figure out how to make CoPilot a really good AI assistant.
Ejaaz: And the adoption rate for Copilot across all the enterprise customers,
Ejaaz: which by the way, they already have in a contract.
Ejaaz: People just didn't want to use it. They requested Claude.
Ejaaz: They requested ChatGPT directly. And you know what Microsoft has done in response,
Ejaaz: what Mustafa Salomon has done in response?
Ejaaz: He's created Microsoft Features,
Ejaaz: are backed by Claude and ChatGPT. And now their partnership is broken.
Ejaaz: Microsoft still has control over the IP, but what happens when that IP runs
Ejaaz: out in, what is it, three, four years time?
Ejaaz: What are they going to do then? They won't be a forefront. And I think people
Ejaaz: are projecting that bear case in the future and they're deciding just to go
Ejaaz: with a safer option, which is Google or Amazon. That seems right.
Josh: Yeah, Microsoft, they've really just kind of missed when it comes to adopting AI.
Josh: There's another earnings report that I'm very excited about that by the time
Josh: you're listening to this episode is out, which is Apple's.
Josh: I think that's going to be interesting to see how they're starting to navigate
Josh: this new paradigm shift where they're slowly moving into AI.
Josh: I know WWDC is coming in June. Hopefully, we get Apple Intelligence.
Josh: I mean, of all these companies, they're serving the infrastructure,
Josh: but in terms of where that infrastructure is actually served,
Josh: that's all on Apple devices. It's on all the MacBooks. It's on all the iPhones.
Josh: So that's going to be really interesting to see. I see a hyperscaler cloud growth
Josh: chart here. Do you want to talk about this for a sec?
Ejaaz: No, I just wanted to like, as we round up this segment, because I know there's
Ejaaz: like a lot of numbers here.
Ejaaz: There's a lot of percentages that we're peddling here. This chart kind of like
Ejaaz: lays it out pretty clearly what the thesis is and what has been proven in these earnings reports.
Ejaaz: AI-related profit is up massively.
Ejaaz: It largely comes out of infrastructure, margin, growth, and that specifically
Ejaaz: has come out of cloud businesses specifically.
Ejaaz: And who owns the biggest cloud businesses? It's Google, it's Amazon.
Ejaaz: And even though it's their littlest brother, It's also Microsoft Azure.
Ejaaz: And this chart I expect to see
Ejaaz: go up and to the right over the next couple of years at the very least.
Josh: And as long as there's free cash flow coming into these businesses,
Josh: it's fine that they spend it.
Josh: That money is going to find a home elsewhere and that's going to improve the
Josh: whole market. So I think as we wrap this up, you look at the PE ratios,
Josh: the price to earnings ratio.
Josh: This is basically how expensive a company is.
Josh: So price to earnings ratio, money comes in, a stock gets value.
Josh: This is the multiple at which the premium of how expensive it is.
Josh: So Meta is trading 16 times earnings. That means it's trading 16 times the forward's
Josh: projected earnings of the company.
Josh: On a relative basis that's pretty low we
Josh: have a comp for the dot-com bubble peak the pe ratio has
Josh: got fairly high microsoft set 73 times earnings
Josh: relative to 25 where we are now cisco was
Josh: over 200 times earnings and yahoo is over 800 times earnings now there are some
Josh: early signs of this spacex being one of them when i think about its pe ratio
Josh: i don't know what it is it's not public yet that's going to probably be close
Josh: to the microsoft cisco level but in terms of these core businesses that are running.
Josh: They're not priced very highly at all. This isn't bubble territory.
Josh: They're not going into debt. They are not spending what they can't afford.
Josh: They are just taking the revenue that they're earning from their customers and
Josh: they're deploying it to grow their businesses even larger.
Josh: So if you're asking, is there going to be a problem?
Josh: Are there shortcomings in the market coming soon? The answer is, I mean, maybe not.
Josh: Things can break. This is subject to change. I know there's a lot of underlying
Josh: things that may change the narrative here, but as of now, things seem pretty
Josh: solid and these earnest reports look awesome.
Ejaaz: My answer to the bubble question is, we're not in a bubble right now.
Ejaaz: As soon as these companies start taking a lot more debt and these P ratios skyrocket, then we are.
Ejaaz: Listen, it might happen suddenly once SpaceX IPOs, once OpenAI IPOs and capital
Ejaaz: gets sucked out of these companies, it remains to be seen.
Ejaaz: But for now, theoretically, we are not there.
Josh: But well, there's one thing. One last thing is like, so the thing that I'm looking
Josh: at is, so long as that incremental dollar spent on compute is still valuable
Josh: to the customer, then everything works.
Josh: It's like as long as the end user is finding value from these AI tools and services
Josh: and they're willing to pay for that, everything continues to work.
Josh: It's once that train stops, once Claude starts to become dumb,
Josh: once we run out of use cases for it, that's when we run into problems and we
Josh: haven't got there yet. So I'm feeling optimistic.
Ejaaz: It's really funny because you mentioned Claude, you mentioned ChatGBT.
Ejaaz: Those are the two products.
Ejaaz: Like if these two companies implode overnight, we are screwed.
Ejaaz: But the good news is not just regular consumers like you and I,
Ejaaz: but very high-powered enterprises that generate billions and billions of dollars
Ejaaz: every single year, find deep value in these products, and they're embedding
Ejaaz: it in every aspect of their business.
Ejaaz: So for now, directionally, we're heading in what I would say is a positive direction for all of this.
Ejaaz: I think that brings us to the end of the earnings. We have more to cover.
Ejaaz: Let's switch contexts a bit.
Ejaaz: So Josh, have you heard of something called Project Deal? Yeah.
Ejaaz: No, never heard of it.
Josh: Fill me in.
Ejaaz: Okay, so our girl Olivia Moore does a very good job of summarizing an experiment
Ejaaz: that the Anthropic team did for one week.
Ejaaz: They said, we created a classified marketplace for our employees in San Francisco.
Ejaaz: It's kind of like a Craigslist, but with a twist.
Ejaaz: All the deals that were conducted by AI models were acting on behalf of employees.
Ejaaz: So they spun up a bunch of AI agents, and you as a human couldn't list the item
Ejaaz: that you wanted to sell. You couldn't write the description.
Ejaaz: You couldn't pitch it. And you as a purchaser couldn't say, oh,
Ejaaz: I don't like the look of that.
Ejaaz: It had to be completely run autonomously by clawed AI agents.
Ejaaz: So they ran this experiment for a week and did the human exchange by the end of it.
Ejaaz: And it ended up generating $4,000 worth of purchases and sales across the entire platform.
Ejaaz: And the customer feedback from the employees themselves were,
Ejaaz: wow, I actually ended up with items that I really wanted.
Ejaaz: Like if you were a purchaser, you gave your agent a wishlist.
Ejaaz: And if you were a seller, you just listed an inventory of things that you had
Ejaaz: in your apartment and the swap was done after a week.
Ejaaz: I thought this was a pretty cool experiment for autonomously run businesses
Ejaaz: or e-commerce specifically that could happen in the future.
Josh: That's very cool. And also here's an answer to why the income will not stop
Josh: anytime soon, because think about how many tokens this requires in terms of agentic capabilities.
Josh: It's like, we started with the chatbots, you talk, it spits something out.
Josh: That was like, okay, but it didn't use that much tokens. Then we had chain of
Josh: thought where it actually generated tokens in order to create a better answer.
Josh: And now we have agents that leverage not only chain of thought,
Josh: but now are going off and performing all of these skill trees,
Josh: burning tons of tokens. Yes.
Josh: As this type of workflow becomes more powerful and delivers more value,
Josh: the amount of tokens that are required to generate go vertical.
Josh: And I think that's what we're seeing right now is not only is the demand for
Josh: AI going up, the demand for tokens is going astronomical with it because of
Josh: these workflows like this one, where I'm sure in order to get this done at this
Josh: quality, you consumed a tremendous amount of tokens.
Josh: And I think, again, this is probably another bullish use case.
Josh: Now, we have more news as it relates to Cursor.
Josh: Cursor releases their agent harness to the public. What's going on with Cursor?
Ejaaz: Yeah, okay. So I need to pause for a second and eat some humble pie because
Ejaaz: exactly a week and a half ago, I was crapping on Cursor.
Ejaaz: I basically said that they have no moat.
Ejaaz: They are, and I quote, an AI rapper that sits on top of the smarter models like Claude and Chad GPT.
Ejaaz: And, you know, Anthropic and OpenAI can basically eat their lunch at any given moment.
Ejaaz: I was wrong. So Cursor this week released a really cool product,
Ejaaz: which was their AI Agent Harness.
Ejaaz: Now, for those of you who don't know what an AI Agent Harness is,
Ejaaz: you have the main model, but the model in itself is good.
Ejaaz: But if you can mold it in a very specific way around a very particular use case,
Ejaaz: so that includes a bunch of very heavily detailed prompts.
Ejaaz: It includes setting up the right developer environment.
Ejaaz: It includes plugging in the right APIs and orchestrating all these things in
Ejaaz: a very meticulous way. That's known as the harness.
Ejaaz: That has grown to be as valuable as the model itself.
Ejaaz: In fact, there was an eval board that was put out this week because we had ChatGPT
Ejaaz: 5.5 come out and we had Claude Opus 4.7 come out.
Ejaaz: They tried adding the harness from Cursor on top of these models and guess what?
Ejaaz: They performed better than the actual models themselves. So now companies are
Ejaaz: like, well, I want this harness as well.
Ejaaz: And in fact, Sam Altman himself said this week that the harness and the model are equivocal.
Ejaaz: They're the same thing and are as valuable as each other. So Cursor decided
Ejaaz: to do the insane thing, which is.
Ejaaz: Release their harness as an API and charge people to sit on top of that.
Ejaaz: So in an instant, overnight, they created this moat that sits on top of these
Ejaaz: models, and they can now charge a premium for it. It was just a genius move by Cursor.
Ejaaz: I'm kind of embarrassed that I didn't see it play out in this way myself,
Ejaaz: but they basically have a product that they can sell that makes ChatGPT and
Ejaaz: Claude 10x better than it already is today. And that's pretty cool.
Josh: Well, you know who saw that is Elon and SpaceX XAI, which sounds like one of his children's names.
Josh: It's a mouthful, but they acquired the option to purchase cursor
Josh: what last week two weeks ago and imagine if that
Josh: model wasn't anthropic it wasn't open ai
Josh: but it was a grok model and now it can be
Josh: 10 to 20 times better in a harness run by cursor i
Josh: think that's probably what they're guiding towards so cursor seems now to be
Josh: a very important company a very important puzzle piece
Josh: and hopefully grok can take advantage of that when they either
Josh: work together or come to the acquisition later this
Josh: year now there is more news on the
Josh: front of ai generated content this one
Josh: being 11 labs now 11 labs for those who don't know is the
Josh: kind of frontier leading edge of audio ai
Josh: so that's things like ai voices voice cloning
Josh: and just recently music production so
Josh: they have a music platform website in which you can
Josh: actually sign your voice up to be used for music
Josh: generation and creation and they announced not only that
Josh: they created this new platform but also that they've paid out 11 million dollars
Josh: to creators through the 11 lives voice library so the question i asked myself
Josh: and i asked each other before i recorded is why have we not signed up our voices
Josh: for this creator program because my god 11 million dollars is a lot of money
Josh: it seems like a lot of the pushback around music generation
Josh: When it comes to ai in particular is that it's
Josh: not real and it takes away from real artists and i
Josh: think the reality is is that artists who publish on spotify make virtually
Josh: no money you get almost zero dollars even if you get
Josh: a billion plays whereas 11 labs they're paying out 11 million
Josh: dollars to a very small set of creators because they can actually earn and
Josh: participate in the upside of this ai generated music so in addition to the music
Josh: being incredibly well produced in some cases it also creates this really interesting
Josh: incentive economy around submitting your human vocals to be used for this music
Josh: production we have some samples of music maybe we should take a sec yeah give
Josh: it a listen go on josh pick
Ejaaz: A pick a track.
Josh: Let's see chrome candy sounds like fun okay here we go
Josh: Okay, I do immediately regret that decision.
Ejaaz: Okay, so out of all of that, I think we picked the most AI generated one.
Ejaaz: I do immediately regret that decision. I promise you some of these are actually pretty good.
Ejaaz: The thumbnail was a bit of a giveaway there. But yeah, to your point,
Ejaaz: there's a few reasons why I like this product.
Ejaaz: Number one, the biggest pushback from artists specifically against AI,
Ejaaz: and rightly so, is this is killing our business. We aren't able to make money.
Ejaaz: You're stealing our IP and just generating profits for free.
Ejaaz: This platform not only recognizes your IP, but feeds profits and money back to you.
Ejaaz: Now, typically in the music industry, it's very complicated.
Ejaaz: You need to have your IP owner, record label, all this kind of stuff.
Ejaaz: And it gets very contractually boring and tedious.
Ejaaz: This is one singular platform that is traceable across the technology itself
Ejaaz: that can license your voice for content that you haven't even created.
Ejaaz: It could be someone else, you and I, Josh, that come up with an idea to leverage
Ejaaz: someone's voice and create a banger tune that goes on to make millions of dollars.
Ejaaz: And you see money come through that and it's in a transparent way through this platform.
Ejaaz: So I think although this is a small infrastructure and platform right now,
Ejaaz: this could grow to be something massive.
Ejaaz: Imagine if Spotify used this infrastructure, you know, you'd end up with a bunch
Ejaaz: more happy artists that end up making more money on average.
Josh: Yeah it's pretty cool i like 11 labs i think they have an incredible
Josh: platform i like this new take on music generation i hope it
Josh: changes the sentiment around ai produced music how it can
Josh: be an actual tool that empowers creator more than it destroys
Josh: them uh we also have more news as it relates to
Josh: claude releases now the month of claude is kind
Josh: of over they slowed down on their daily releases but they did release something
Josh: just yesterday that we found interesting which is a new
Josh: series of connectors things like blender things like adobe
Josh: creative cloud ableton which is a music production software canva
Josh: sketchup a lot of new applications one of the most noteworthy ones
Josh: was blender which for those who aren't familiar blender is
Josh: a 3d modeling and rendering software that actually takes
Josh: really complicated files for rendering things like if
Josh: you ever wanted to produce a product it creates the 3d renderings of all the
Josh: intricacies of something like a keyboard all the keys all the switches the housing
Josh: for it and now it can work directly with claude i was really interested i wanted
Josh: to check out the adobe creative cloud because i'm a huge fan of creative cloud
Josh: and do a lot of work in that world.
Josh: Unfortunately, it's only just Adobe for creativity. It's a pretty lame app.
Josh: And then I started playing around with this more. And the reality is,
Josh: is that it's very slow when it does all of these things.
Josh: It takes a long time to think and work. And while it is powerful,
Josh: it's just painstakingly slow to actually get outputs and engage with these tools
Josh: right now. But it seems pretty interesting.
Josh: I would hate for it to make a mistake on like a 10,000 part rendering of some
Josh: complicated object and you don't know what it is. So it's high risk.
Josh: Use at your own discretion.
Josh: But I think it is noteworthy news for this week, at least.
Ejaaz: Okay, so for the final topic, Josh, I have a nomination for the worst AI product ever created.
Ejaaz: And I'm sad to say that it was created by one of the biggest companies that
Ejaaz: we just spoke about on the earnings reports. So thank God this isn't the moneymaker.
Ejaaz: So this is a new feature from Amazon, where when you go on their e-commerce
Ejaaz: business, the Amazon platform where you order toilet paper, like I mentioned
Ejaaz: earlier on, you now have a new AI feature which generates a podcast about the products.
Ejaaz: Two AI hosts discuss the product that you're viewing and takes your questions
Ejaaz: as if it's in a call-in show.
Ejaaz: So just to be clear, you press the button, right? This is like a demo here. I'm not going to play it.
Ejaaz: But like, you know, you're looking at, what is this? Home Care Pro Rapid Relief Rash Cream.
Ejaaz: And you can generate two AIs that like talk about the product.
Ejaaz: And if you have a question, you can type in the question and they answer it live.
Ejaaz: So as you're scrolling through the page i don't know why you would want to use
Ejaaz: this maybe i'm missing something i we are in the podcast game and even i hate
Ejaaz: this product with a visceral amount of myself josh can you help me unpack this
Ejaaz: like why would i want to use this.
Josh: Is this even real this seems like they're trolling like
Josh: is this even a real feature i'm like very skeptical but it's funny i mean previously
Josh: notebook lm which is google's program they did this they allowed you to kind
Josh: of insert any sort of research or idea into their program and then it would
Josh: generate you a podcast this seems to be doing a live call in q a based on people's
Josh: reviews and tough questions it's
Josh: I guess if anything, it's a testament to the cost of content coming down to
Josh: a level that is so marginal that Amazon is looking to implement it basically for free.
Josh: Is this necessary? Probably not. Are people going to use this?
Josh: Probably not. Is this real? I'm not even sure.
Josh: If anything, it's a really compelling demo. But yeah, I found it really funny
Josh: that, I mean, it's just a testament, again, to the cost of everything going
Josh: down, the accessibility of AI and the AI-ification of everything.
Josh: Not everything needs to have a podcast. Not everything needs AI.
Josh: I don't know. Funny story to end on. but i think that is everything this was
Josh: kind of long if you made it to the end yeah you've really you you've made it
Josh: you're up to date you know all the things that matter this week we had a few
Josh: other episodes this week that were pretty interesting if you missed one is on
Josh: that china deal with meta
Josh: one thing that wasn't covered in the earnings report is this meta
Josh: and manis acquisition issue where china actually blocked it
Josh: meanwhile the ceo of manis is a
Josh: vice president of meta and working at the offices currently so it's
Josh: a huge disaster we had an interview earlier this week where we spoke
Josh: with the guy who is responsible for usvc an easy way that you can invest in
Josh: anthropic spacex and open ai before it goes public that was pretty interesting
Josh: and we also covered sam albin and elon musk's trial now we don't have any updates
Josh: on that today we're going to be covering those in the coming weeks but yeah
Josh: thank you guys so much for watching you guys any final thoughts before we leave them for the weekend
Ejaaz: Oh no i think we've we've kept them here for a while but you are officially
Ejaaz: caught up to date with everything and anything going on with ai from everything
Ejaaz: from product releases to earnings reports to drama between Elon Musk and Sam
Ejaaz: Altman. We do grudges. We do everything on this show.
Ejaaz: So the point is we have extensive coverage. And if you aren't a subscriber,
Ejaaz: if you haven't rated the show, even if you hate us, leave us a comment, give us a rating.
Ejaaz: We would love to hear from you. It helps us out massively.
Ejaaz: And yeah, we will see you next week on the next one.
Josh: Thanks. Have a great weekend. See you guys.