The Six Five team discusses Google Q2FY24 earnings.
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Transcript:
Daniel Newman: You want to bounce over for a minute, talk a little bit of Google?
Patrick Moorhead: Yeah. Let’s do that man. What happened?
Daniel Newman: So yeah. I love that. I love that. So look, the market for whatever reason is selling off tech right now. So it’s one of those where the numbers are good, but the reaction wasn’t particularly good. But all of tech is-
Patrick Moorhead: I don’t know. SAP did pretty well.
Daniel Newman: Actually, it’s a great, great call out Pat is that SAP did well, and IBM did well, and we’ll talk about that. But it’s these older enterprise –
Patrick Moorhead: Mag Seven.
Daniel Newman: … tech value companies are getting a bit of a tailwind right now, and the Mag Seven companies, we’ve seen NVIDIA on a two week, three week straight downturn. Google put out good numbers, downturn, and it doesn’t entirely make sense. But you also have to remember what a run up that we’ve had. And there’s been a lot of sell the news, but if we want to just stick to the we want to try to not guesstimate why the market does what the market does. Gosh. There is some crazy political things going on right now. We’ve got a lot of uncertainty for the White House. We’ve got a lot of uncertainty about legislation, law, policy, inflation, interest rates.
There’s a lot of things that impact the market other than just the earnings themselves. So if you want to just look at the earnings, look, good growth on the revenue, strength in net income. It was up 28% on net income. You’ve got YouTube revenue up, but it didn’t hit the mark. But Pat, this is where I’d like to double click. Cloud revenue, 28.8% growth, they’re killing it. They’re absolutely killing it over at Google in the Cloud. They’ve completely been reborn in the era of Generative AI. Google had that. We talked about it for the longest time with the AI, and data, and ML capabilities that they’ve had out the gates. It was that moment they needed to reboot. They’ve won a lot of unicorn customers. They got a lot of the big customers using their parts and pieces of their platform.
By the way, something you and I want to spend some time better understanding is how every Cloud provider has every unicorn, because I think multicloud’s a real thing. And AI has actually accelerated the move to multicloud, and that’s been a great thing for Google because of its strength in AI. And now they’re not only growing really fast Pat, but they’re really profitable. They delivered a billion dollars of bottom line profit to the company, which two years ago, they weren’t delivering anything to the bottom line. It was one of those things where quarter after quarter, Pat, you and I kept saying, “The good idea, they got some good revenue, but are they ever going to make money for the company,” and now they’re making money. So they’ve got innovative products. They’ve got a good growth of customers. They’ve got strength in Cloud. I want to leave a little oxygen in this one for you. The only thing I want to kick back about Google that’s interesting is the fundamental technology that’s going to power Google between the TPUs, and the actual technology on the silicon side, and the technology for search itself. Are you in here twice? Am I seeing you twice?
Patrick Moorhead: Yeah. I got no idea why.
Daniel Newman: That’s pretty cool.
Patrick Moorhead: Just ignore it.
Daniel Newman: Okay. Cool.
Patrick Moorhead: This has never happened before. My browser decided it wanted to update.
Daniel Newman: Great.
Patrick Moorhead: That is amazing.
Daniel Newman: You look good.
Patrick Moorhead: Thank you Microsoft Edge. I do appreciate that.
Daniel Newman: Well, you got to keep you secure. No BSOD today. So what I was getting at though is the fundamental technology. I think you maybe heard. We didn’t have it on the docket this week, and we probably should at some point is this new SearchGPT product is the whole search business is just ripe for disruption. And we thought this when this whole Bing thing, and OpenAI, and ChatGPT came out, and it didn’t really move the market. So there’s this really strong fundamental pivot going on that is the search business, which is the core business of Google, which is super important. Is it safe?
And I’ve been saying for a while. They’re changing the business. They’re moving to Generative. The market and economic models are so different. I do think there’s going to be a lot of thought about that, because Alphabet Google’s wellbeing. So it got its Cloud stuff together. It’s got really good technology, and the TPU, and its generative tools to build capabilities. It’s had some questions around some of its GenAI product, throughout the launch periods of time, but it continued to get better. And that’s showing up in the numbers, but what the future of search looks like, that’s an interesting discussion, Pat, but let’s maybe have that another day.
Patrick Moorhead: Yeah. So sorry for the technical glitch there, but yeah. To me, the big story was Google Cloud, and how it’s doing. So I completely agree with you Dan, and quite frankly, I don’t really care a lot about the ad business, or the YouTube business, or anything like that, because it really doesn’t relate to what I do for a living. I think Google has this immense opportunity even in the future to move beyond some of the whales that they bring in. And that’s the seminal challenge for the company there is most of their revenue is driven by very large SaaS companies, and who don’t do their own infrastructure. And that doesn’t mean Google doesn’t get what I would consider classic enterprise, that just get less than AWS, and what Azure get. I do think, and this is going back three or four years, if you remember, Google’s Land and Expand was all about data. Right?
This is before the Generative AI craze. And they had some of the best data management tool. Just even Spanner and stuff like that was really world-class. And AWS was really the machine learning darling, and Azure, heavy duty PaaS, and a lot of SaaS. They’re just starting to, in my humble opinion, get super aggressive on IaaS. But now that we’re in this age of Generative AI, even though they had some major stumbles, Bard one, wow, Bard 2, wow, Gemini 1. And most of those were consumer punches in the face, and controversial from that point of view. But it bleeds over into the Google Cloud part. And they’ve done what I think is a very fine job. If you look at Vertex AI, Vertex AI to me is one of the simplest to understand, and what I hear from enterprises, one of the simplest to operate.
That doesn’t mean that Azure AI and Bedrock are not fine products, but that’s the feedback that I’ve been getting. I really do think at some point the TPU will show to be an incredible investment. Let’s just say that a TPU on a per token basis is 1/2 as expensive as NVIDIA. Think about the cost savings that you can put in there at the potential advantage, at a minimum on a cost basis, even if you look at Google SaaS versus Microsoft SaaS products and product lines there. And it also to me, if done right helps solve their potential the doom of Google search declining, which is really the funnel for most of all of their profit dollars, maybe with the exception of YouTube, but yeah. The risk, it’s so funny. Initially when these GenAI tools came out, they were so bad, and you had to check every single source to see if it was accurate. If you wanted it to help you do a week in Spain for $200 a day, it was amazing. But to do things like even financial analysis, and even Perplexity, and I forget.
Maybe you, or maybe Ben Baharin, I forget who first started talking to me about that. I don’t start any of my searches Dan on Google search or Bing. I want to go right to the source down my type of searches. I’m not looking for a website typically. For simple queries like when was somebody born, or how old are they, I’ll stick with Bing or Google. But for anything, God, 99 out of 100 searches right now are on Perplexity, and yeah. I am interested to see this new ChatGPT search capability, but I think it could start to get very risky for Google. And it’s funny. When you are the dominant player in anything, you’re going to have something out there that is able to do better than you for many reasons. First of all, there’s no legacy with the GAI, Generative AI search. The second thing is you don’t necessarily need to make money. What did people say? How much money was OpenAI going to lose this quarter? $5 billion?
Daniel Newman: I think it’s the year, but yeah. It’s a lot.
Patrick Moorhead: For the year. So you don’t even have to make money. You can lose a boatload of money, where Google search, that is where most of their profit dollars are coming from. And the other thing, and this is a subtle thing, but Dan, I’m a product guy, I can’t help myself, is it’s also the implementation. There is not a specific application. As an example for iOS, for Gemini, Google Gemini, there is a Google app that you have to pivot, or press a button to get to Gemini. And I am aware that you can do a Google search, and sometimes it will leverage Gemini for one of these snapshots, but they’re not even anywhere nearly as good as that. So hopefully those were some insights and adders to what Dan had been talking about.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
