On this episode of The Six Five Webcast, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The handpicked topics for this week are:
- Intel Q3FY24 Earnings
- Google Q3FY24 Earnings
- AMD Q3FY24 Earnings
- Apple Q4FY24 Earnings
- Microsoft Q1FY25 Earnings
- Amazon Q3FY24 Earnings
For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.
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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Transcript:
Daniel Newman: Hey, everyone. Welcome back to another episode of The Six Five podcast. It is Friday, episode 239. Pat, can you believe 239 times now we have gotten together to do this podcast? And that doesn’t count the thousands and thousands of on the roads and insiders and others events that we’ve done here on The Six Five, Pat. But it’s a great week. It’s been a banger. I guess there’s two sides of it. We aren’t financial analysts, but we do know that every quarter there is this inflection, this moment of truth and it hits when all of the earnings hit. And thank you to November 5th, our upcoming election, everybody, almost everybody, there’s a couple that are going to go next week, Pat, but almost everybody decided to do it in one week instead of two weeks, so that we could just be absolutely bogged down every day at 4:00 p.m. Central Time reading results and trying to synthesize, tweet and go on TV. Buddy. How are you doing?
Patrick Moorhead: Doing well. It’s been quite a run. Sunday night I was in freaking Seattle, did Seattle Monday, flew down to LA, did LA Tuesday, maybe just Tuesday or Tuesday, Wednesday, I forget. They all blend. I’ve been on the road for two months. I went back and checked my calendar. I had not slept in my bed for five days, contiguously for two months. So, it’s been quite a run, but super exciting. Sticking with the low, no drinking, getting sleep. High stress, my stress is maxed. It’s you stress not distress and hitting the weights pretty hard. My entire body is aching at this point. But no, it’s earnings palooza. It’s on the pod. You and I are both on the ground. It doesn’t get any better than this. Our love affair continues.
Daniel Newman: Yeah, dude, your pecs are looking great right through the camera. I just want to point that out for everybody. Everybody, make sure you give Pat a couple thumbs up on his great pecs. He’s been hitting the weights pretty hard.
Patrick Moorhead: What are you talking about?
Daniel Newman: He’s been hitting the weights pretty hard. We got to make sure we keep him motivated by telling him consistently how good he looks. That’s how it works in these places. But I know that’s not why you’re here, at least I don’t think that’s why most of you are here. You’re here to get the takes on earnings and this is a banger of a week. There were a lot of earnings, there were some smaller companies that we do cover. Companies like Commvault actually had some really good results, Pat, but when it comes to time to talk about what is going on, everybody wants to hear about the Magni, the big chip companies.
And this week, we got it all. We got Google, we got Microsoft, we got Apple, we got Amazon, we got four of the mag seven, plus I think Tesla at last week. We don’t talk a lot about Tesla. From time to time, we’ll jump on that but it’s somewhere in between for us. But then AMD and Intel went over two days. We talked with Pat Gelsinger, we talked with Lisa Su, we talked to executives across these different companies. We’ve got the inside scoop, Pat, we know what’s going on. We’ve got an assessment. You were on what? CNBC, Yahoo Finance, talking to the press, the media. I went to New York. I toured the town. I went on TV with Wads. It was me and Wads because there was a good lineup but I mean-
Patrick Moorhead: Where was the selfie buddy? Selfie or it doesn’t count?
Daniel Newman: No, he was actually remote. It was all a big hook. You’re going to be in studio with Wads, but Wads was on the… If I was Wads, I’m not traveling to do that. I’m sitting in my office, you’re coming to me baby. You’re coming to me.
Patrick Moorhead: Me in my office wondering why I didn’t hold my Apple stock.
Daniel Newman: Well, it’s right there next to your AMD stock. That’s why you’re going to have to keep working, buddy.
Patrick Moorhead: Dan, you can’t do that. I’m trying to choke down my 25 pills in the morning. I’m only halfway through this delicious feast and I almost spit it all out on my-
Daniel Newman: If you want Pat to sometime tell you what his AMD stock would’ve been worth if he’d had the gall to just let it ride, but we’re not going to do that today. Go ahead and put it in the comments. If you’re interested in knowing what… I don’t even know if he’s ever figured it out actually to the metric because it might be so difficult to digest. You ever seen those graphs where it’s like if I buy and it shows it going down, then it goes, if I HODL and it just goes sideways forever. And then it’s if I sell and it goes straight up-
Patrick Moorhead: I know.
Daniel Newman: … it does feel that way at times. It definitely does. We are not an investment show. This is not investment advice. This is two industry side analysts in our firms and we’re providing our perspectives on these companies. Just know that this show is information entertainment. Do not buy stocks because of this. But Pat, you and I were really on the fence about how the Intel thing would go. And then I think I texted you right after it hit and I’m like, “Dude, it’s up.” And you were like, “What?” What happened with Intel? Give me the rundown.
Patrick Moorhead: File this under things you didn’t expect because when I saw the raw numbers that came out, EPS was off by like $3.80 cents. And I’m just like, oh, okay. My mental model typically is okay, when you have write-offs or impairment charges, I’m thinking that doesn’t make its way into adjusted EBITDA. Not adjusted EBITDA but non-GAAP EPS. But after I went through and did my own financial engineering and then you texted me, I’m about to get on Yahoo Finance, it’s like the stocks up 10%, it pretty much blew my mind. But here’s what the street reacted to. First of all, really good operational performance with a good guide. They beat on revenue by about $260 million. When you dig into they had a $15.9 billion impairment charges, 3.1 billion, I think, showed up at the non-GAAP EPS line.
Without all of that, margins would’ve been in the forties. And they had a better than expected EPS, which the expected was a 3 cent loss turned into a 15 cent profit. But anyways, with all that stuff, the stock ripped and then I got back in my chair and it’s like the fact that there wasn’t bad news, nightmarish news the quarter before the stock ripped and it’s priced at well below a book value. And they do have tangible assets, not just a bunch of goodwill. They have literally property, plant and equipment for those of you who ever took accounting, PPE. But here’s some of the highlights here, and again, according to the company, five nodes in four years is on track. And 18A is the turnaround node. It’s not all I care about but it’s all I care about because in the end, you can have an okay design and a kick butt process and transistor and do pretty well as long as you’ve got volume flowing into the fab.
At a time that TSMC is raising prices, it’s getting investigated by, I don’t know, maybe not the Department of Justice, but maybe it’s CFIUS for selling parts to Huawei through a third party. All this looks good for Intel. The $10 billion cost reduction plans appear to be on track. People got pretty frothy out there on the interwebs talking about another 16K but it’s not another 16K on top of the 20K or the 20% that they talked about. But it’s all built in. Let’s break down some of the businesses. PCs were down 7% year over year. AMD has likely took unit share on that. They had a pretty strong rise in nine K sell into the channel. We’re going to be talking about AMD a little bit later. The company made its point that says, hey, we’re going to be shipping 100 million AI PCs by the end of 2025.
That’s the scale at what they’re doing and is likely going to be quite higher than both AMD and Qualcomm unless things change. Data center and AI baby up 9%, thank you, Xeon. They launched Gaudi 3 but I don’t think that’s reflective in the numbers. Gelsinger did take that Gaudi 3 number down. Dan, you can talk a little bit more about that. Surprise, network and edge, albeit a smaller business was up. That sector has been in the toilet forever for everybody. It’s good to see some year-on-year growth there. Foundry down 8%, I don’t even care about that. It’s a small number. 18A hasn’t kicked in yet. And quite frankly, those are nodes that weren’t built for other companies. It was built for Intel.
Daniel Newman: I think it’s up sequentially too. I think it was just year-on-year. So, they had some good sequential numbers, which sometimes-
Patrick Moorhead: Final point here, I’ll tear it down 44%. It’s a lot larger than I thought. I know the market’s rough. We’re going to have to see exactly what other people in this sector and not just the other FPGA companies, but in this industrial sector. That sector has been in the toilet but we have seen some quarter on quarter growth once everybody cleared out their inventory from people like ON semiconductor, ADI, Renesas, folks like that. All in all, stocks ripping. No, disastrous news is good news. You got to give Intel credit, good operational performance and a solid guy and they beat on revenue.
Daniel Newman: Yeah, there you go, Pat. I think you and I were both pondering on this impairment, what would happen. Like holy crap because when you first look at the numbers, you’re really bad. It actually gives me some hope for AI and algorithms because it seemed like there was no delay in the ability for it to figure out that these were one time impairments. There’s always a little bit of confusion because the impairments were actually much bigger. It was like 16 billion and there was about 3 billion that they were not able to sort of disclude from their non-GAAP number. And I always wonder, you and I aren’t accounting, we’re not Ernest & Young, we’re not running away and I don’t think this is super micro, but the point is how does things end up in the impairment and what ends up in non-GAAP, what does not. But the TLDR is they were thinking 3 cent loss and that of all of these things and they got to 15, 16 cents.
I kept doing the math and it kept ending up a little bit different but it was in that range. The point is I think the market is asking the question, can the company make money under normal circumstances without all these impairments? And the signal there was yes, it can make money even with the foundry if it doesn’t have to continue to take these impairments. You also got to remember the company has made like $30 billion of investments in the last two years since the CHIPS Act was announced. And you know how much money they’ve gotten from our very efficient government.
Patrick Moorhead: Hang on a second, I haven’t taken all my pills yet, dude, that’s not fair.
Daniel Newman: Well, it won’t take it a long time to get to the fact that it’s this much zero, not a penny has been paid yet. They’re doing things and their credit, they should probably get credit than they’re getting because they’ve actually continued to push forward, make these investments. There’s not a lot in the numbers that got me super excited. I’m not going to sit here and be like 9% or 11% data center growth. AMD had 122% data center growth. It’s hard but growth is better than not growth. I think when you’re playing sort of limbo off the bottom, instead of going under the bar, they’re stepping over and that’s good. That’s the step they had to make. The Gaudi thing that you mentioned is a transition from generation to generation. Gaudi 2 is okay, Gaudi three looks like a much stronger product Now.
Pat went on Bloomberg after I did. I warmed it up for him. He went on after I did. And he talked about the software flexibility, programmability of Gaudi versus these bigger flexible programmable GPUs. He talked about the road map is that Intel wants to get there but in the meantime with Gaudi three, they’re working on more programmability, more flexibility that it can do more of the things that need to be done. I like that product in the enterprise. I know IBM Cloud is doing something with it. I think where it’s going to potentially be successful in the enterprise. It could be a nice hedge in the same sort of areas where I think Instinct could do well. It doesn’t have all the same characteristics but there are these certain workloads where cost and performance and efficiency… And Signal 65. I’ll have more to say about that soon. That’s our testing performance lab in case you have not bothered to read any of the stuff that’s come from them. It’s great stuff.
That’s where it’s at with that, Pat. The client numbers, I’m so conflicted on what’s going on with the client because we’re not really seeing that AI PC liftoff that I think everybody had thought. It’s looking like it’s a little bit slow but again, the features haven’t really come out yet. And I keep talking about this next generation is going to be software driven, not hardware driven. You got something there. What you got?
Patrick Moorhead: No, it looks like Recall got pushed again. My gosh, it was supposed to be out in June. I get asked this all the time. Well Pat, you get up on stage and said the super cycle was going to start in the second half of ’25. What’s going on? You know what? The software got pushed back six months and the features that were pulled to the front are not nearly as compelling as the killer app is going to be. We’re seeing the same thing with Apple and we’re going to talk about that. Yeah, I just needed to get that-
Daniel Newman: Yeah, no, no. And again, we make our assessments, our market models, we drive our perspectives on things based on information we have. We have a lot of insights and we get a lot of information but dates get changed, dates get pushed, products get pushed, and of course, revenues will follow. You can’t sell something that doesn’t exist. Vaporware does not particularly sell all that well. It does create a lot of enthusiasm though. So, if people want to be enthused. That’s my TLDR on what went on with Intel. I think it was a surprisingly good quarter for Intel.
Last thing I’ll say is keep your eyes on the policy gods. The policy gods are the catalyst of the Intel Foundry business. Pat said they’re going to keep it together. There’s a value in this sort of separation of the companies from a standpoint of governance, but at the same time, there is value in having the two arms of the business. We need a strong US-based chip manufacturer to put out some double-digit percentage of leading edge… And that isn’t TSMC, they don’t meet the requirements. Samsung is having its own woes right now, and I do think if Intel can get its act together, all roads lead to Intel for a nice opportunity for growth in foundry. We’ll leave it there.
Patrick Moorhead: Can I actually, just to make a-
Daniel Newman: Yeah, go ahead. Go for it.
Patrick Moorhead: … long story longer. Something came up the call on the call that I thought was super interesting. Pat said he is got two new compute centric ATA customers. I think the Microsoft and Amazon ones that were disclosed, I believe are networking. One of them was publicly disclosed as networking. I believe the Azure one is now networking, not Maya. But anyways, I’m trying to think of who these two compute folks could be. I mean, my gosh, how provocative is this? Is it Nvidia? Is it something off of Marvell, XPU, Broadcom XPU. Very, very provocative.
Daniel Newman: Yeah. Let’s see. I might know something but I can’t tell. I’ll never tell. Anyway, all right, so let’s-
Patrick Moorhead: Who do you think it is? If you got something, spill.
Daniel Newman: Can’t spill.
Patrick Moorhead: Huh?
Daniel Newman: I can’t split.
Patrick Moorhead: All right.
Daniel Newman: Maybe I’ll spill to you later but I can’t spill. All right. Hey, everybody out there, don’t get too excited. The great reveal isn’t going to happen here today but we are going to have to carry on because there’s so much more to cover. We went Intel first, which was actually yesterday. Now we’re going to go back in reverse through the order of the week a little bit more. Google started the week, Pat. Let’s talk about the Google Macro. They’ve got the FTC up there, rare. They’re getting pushed on… There’s people trying to break it up. There is some concerns that it’s abusing its monopolistic powers. There seems to be some concern about the company’s long-term. There’s a whole bunch of new search disruptors. We’re hearing Meta search, OpenAI search. Everybody’s got a search, search. We’ve seen this story before. Microsoft had the ChatGPT and Bing and they were going to start eroding Google market share.
I’d call Microsoft a pretty formidable competitor and I don’t recall a whole lot of market share being seeded. Old habits die hard folks and Google has done a pretty good job. We could argue about the models, we can argue about the accuracy, we can argue about the quality, but their generative AI search returns inside of Google search is pretty well embedded at this point. People are getting that sort of chat GPT experience in Google. You and I are nerds, so we play with everything. We compare quality, that’s our thing. But the average user, when I’m asking my mom, she’s not switching off Google and especially all the iPhone users that are default. Unless they stop that from happening and that actually gets stopped, that will always play a huge role is that on pretty much every mobile device in the world, the default search when you just tap something into your search bar is always going to be to Google. That’s 100% of the market share folks right now.
That’s really, really interesting. But how did they do? I mean, look, it was a really good quarter. It was really clean. They beat on EPS, they beat on revenue, they beat on advertising. They managed their costs pretty well on traffic acquisition, Pat, but I think the part you and I want to talk about, we like advertising. It’s cool. We get a little bit excited about that search technology, but dude, cloud, cloud number. This is a over 40 billion a year run rate. Pat, you remember when it was less than 10 total a year run rate, this thing has absolutely reached the inflection point. AI changed the order of operations for cloud consideration. It opened the aperture to multi-cloud in a big way. Companies really started leaning in, doubling down. They had a decade plus of investment in building their own silicon, which they’re starting to gain advantages and profitability, efficiencies, lower costs.
They’re not as tied down and dependent on getting access to the Nvidia. They’re training their own models on TPU. They’ve absolutely had the chops with Brain with Deep Mind. They’ve been doing this for a while. While others were talking about it, others have bought their way into it. They were doing this and I think it’s starting to really bear fruit that they have this lineage of AI in their business and in their model. Pat, 2 billion of profit income contribution in one quarter from Google. You remember when we were going in, “Will they ever make money? How long can they keep pouring hundreds of millions of dollars a quarter into this thing?” Now, they’re making money. And this is the thing about the mag seven I’m going to say is all these companies can basically buy the market right now.
So, when you talk about disruptors, my concern is that these 6, 7, 8, 10 or so, companies absolutely can buy their way in with CapEx, they can buy their way in with energy, they can buy their way in with silicon development. So, it’s going to be really, really hard for disruption to take place. But at the same time, it takes more than a decade for the regulators to do anything meaningful. So, there’s no way they can stop it. Our system is just super inefficient. So, if I’m an investor, I’m looking at this and going, this is really great. And by the way, Google was trading at a really low multiples like 19 times forward. It was not trading at a super high premium. There’s a lot to be excited about here. Unless you believe regulators can really break this thing up and I just don’t, I don’t buy it. And if they do, there’ll be so many appeals, it’ll go on for so long it won’t get done and onward.
And by the way, even if they do break it up, we’ll come back to this later and I’ll pass baton over to you brother, is even if they do break it up, you know who gets all the benefit? It’s another mag seven company. It’ll be Facebook, it’ll (beep)… Sorry. It will be Amazon. Darn it, I just ruined the episode. It’ll be Amazon. Amazon is a 40 something billion advertising juggernaut now, so where does it go? Anyways, Pat, the worries are over inflated. The results were freaking terrific, and it’s hard to say a lot bad about this. These cloud companies have really clean quarters.
Patrick Moorhead: Yeah, lest we forget that Google created the first research paper on generative AI. They didn’t move forward with it. They thought it was too spooky and then OpenAI comes in and Microsoft latches onto it, and it’s pretty much throwing everybody’s face. Bard comes out, that’s a disaster. Gemini 1 comes out and it’s doing pretty suspect results, particularly on images. And then Gemini got updated and it starts to get better. If you look at the challenge that Google has serving up trillions of search results, you can’t just put hardcore GPUs across that because you’re going to run out of money and your profit is going to go in the toilet and your stock is going to tank. So, they had to come up with something and that something was the TPU. The TPU, like Gaudi 3, is optimized for efficiency.
You’re not paying the Nvidia tax. You are paying the TSMC tax and the Broadcom tax, but you’re not paying the egregious, probably 500% margin that Nvidia is getting on GPUs. And because it’s more efficient, your cooling is lower, your density is higher, your energy bill is lower. With that said, Google is not the first place that I’d go to do generative AI. I’d go to Perplexity and if I don’t see what I like in Perplexity, I’ll go to Copilot and then I’ll go to ChatGPT. Again, we’re this weird version of people who needs to just go directly to the source and we can bop across different ecosystems but we’re not normal. Normal is, I’m going to keep going to Google. I don’t even know what this generative AI thing is. We’re super enthused by, let’s say, 30 million paid users for ChatGPT, but what’s the population of the planet? It’s pretty freaking high. Sorry, I’m not going to open up that message you just hit because it-
Daniel Newman: No, don’t let me distract you.
Patrick Moorhead: The window pops open behind me for some odd reason. Microsoft has got to fix that stuff, it’s so weird. Anyways, if I dial in a little bit, the hit on pretty much every single expectation metric across every business line was a beat or a meet. I think the only thing that was read was free cash flow but give me a break, Google has got a ton of cash and nobody should be worrying about that. When it came to Google Cloud, my gosh, the profits they’re pumping out are freaking impressive, going from losing a ton of money to making a ton of money, and the way that that was addressed on the call was scale. It’s all about scale. It’ll be interesting to see how long Google Cloud can keep that rocking growth percentage coming 30, 35%. Good job, Google. I think you and I both know on the regulatory side, none of this stuff matters after 10 years. In fact, a new story last week said that after, I think it was 15 years, Intel won its case in the EU brought to them by all the AMD stuff.
Daniel Newman: Yeah, that’s pretty wild. The one other thing I’ll add is OpenAI is not going to take down Google. I’m just telling you. It’s not going to happen. Market people come back and tell me I was wrong. If it does happen, I just don’t see it. All right, buddy, let’s go on. Let’s get back to chips. It’s been a while since we’ve talked about a chip maker’s earnings. AMD, how different, better, worse. Pat, what’s your initial readout versus the Intel report?
Patrick Moorhead: Listen, AMD came in with a beat, meet and some people said, hey, that EPS was… They missed EPS, and the guide didn’t excite people. The street was not entertained. It’s so interesting as a company data center, I’ll just talk about the quarter and then I’ll get a little commentary. Data center and client, they blew away expectations. Both Epic and Instinct. Zen 5 is looking really good. There was a big rise in nine K channel fill, rise in AI and growth in commercial with more enterprise wins. Gaming, totally get this. I do not understand why equity analysts have numbers on this. The console makers didn’t create a new lower cost addition. We did see in the guide that gaming is going to be a lot better because you likely have Navi4 coming in but you also have some new console action. Unembedded. Like we’ve said, you’ve said, I’ve said, when it comes to embedded, what you should look at is quarter-over-quarter growth. Year-over-year is tough given that the market is in the toilet. We talked about Intel was down 44%, which is just astronomical.
But quarter-over-quarter growth is the first step which you did. Instinct forecast didn’t seem to impress going from 4.5 to 5, but I want to dial back a little bit here. People need to recognize that literally a year ago, AI went from $0 to what’s going to be $5 billion. Very similar to the ramp that we saw with Epic but even steeper. If you look at the big customers they’ve pulled in like Microsoft, Meta, Oracle, that’s a really good start. The two, I don’t want to call them laggards out there but I will, are Amazon and Google. I do believe in the next six months, we are going to see Amazon and Google Latch onto AMD, probably AWS first. I don’t say that based on any inside information or conversations but it’s just inevitable in the way that Amazon works to be able to do that. That’s really the top level.
I can’t imagine anything less than a… I miss this, Dan, I’m part of the problem on the expectations. I looked at them doing a full sweep of the hyperscalers, which they didn’t and I probably gave the company too much credit based on what the slide said in terms of performance. But then again, reality needed to set in, I think I called 10 billion at the beginning of the year, even though they were like zero, just if nothing else, based on Nvidia market share in capturing 10% of that and the company’s rocking inference capabilities. What I didn’t factor in was the complexity of getting them into multiple customers and potentially, even the ability to ship the volume, which I think right now is not an issue. And I do think that AMD has enough capacity to meet demand.
Daniel Newman: Pat, you hit a lot of this really, really well. AI was the number, the entire reaction was AI driven. The entire reaction was instinct number driven. I know we had the chance to sit with Lisa, and I think Lisa did a really good job of helping both of us talk us both off the ledge a little bit. I think we were both kind like, how do you get to 100 plus billion for Nvidia here, that it’s completely sold out here, that there’s this tenable demand for AI and not see a bigger forecast rise but this stuff does take time. Really, what I found most profound was her overview and acknowledgement of software. You and I talk about this. We heard Pat say it about Gaudi 3, we hear her saying about… They’re making great progress with ROCm but the CUDA head start is meaningful, the situation in terms of getting customers to move faster. Of course, the battle isn’t only on the hyperscale front. The battle has to be fought on the enterprise front. And that’s where I think there’s a big opportunity for everyone that’s not Nvidia to do pretty well.
Sorry, the Epic numbers were good. I guess the death of the data center CPU has been maybe somewhat exaggerated and that was indicated. And of course, I think they have an opportunity from a vertical positioning, the acquisition of ZT Systems, the build out of their front end and backend networking. And they are really building a stack. It’s not quite as much of what I call a closed loop as what Nvidia is doing but there is an inherent demand that will be based on selling their GPUs, their compute, their networking, and then building their rack scale. I think that’s where growth comes. I think it’s a little bit of a delayed fuse. I think, of course, there’s always rationalization going on. I do think that maybe 10 was too high, but I think people would’ve probably loved to see even six, just something that felt a little bit more promising. But we’re seeing the same thing everywhere.
Pat, we do have to weigh in that there’s this big overall growth opportunity. We see a 30% CAGR at Futurum for this. She sees a 60% CAGR, so that’s loaded up with opportunities with what AMD is seeing. You’re hearing more about Broadcom chips, you’re hearing more about Marvell chips. They’re not Broadcom or Marvell, they’re XPUS that are co-developed with those companies to be clear but they’re coming out with AWS. Microsoft OpenAI announced something this week, potentially. Meta is doing some of their own silicon. The Chinese companies are absolutely going to do their best to try to build their own silicon with the resources that they have. Is that going to eat GPU market? I mean, I don’t know that it’s going to eat it. If you genuinely believe that the killer workload is inference and not training, which I think a lot of people do, the hardened of XPUs could be a really efficient way to get things done.
So, these are all factors but overall, Pat, it was good from AMD. It was a good result. But again, I think everybody’s just sitting on the ledge wanting to hear big, big, big AI numbers. Even though it’s the biggest, fastest ramping product they’ve ever had, Nvidia has set an incredibly unreasonable bar for how fast things should grow. So, I want to hopefully put everybody out there’s that’s listening to this, have a little bit of ability to think about what AMD is doing, what AMD is building, and why it has some upside long term. There you have it.
Aw, I just kicked my garbage can under my desk. Anyway. All right, so-
Patrick Moorhead: Poor garbage can.
Daniel Newman: Oh, man, it just met my foot. All right. I’m going to put my foot in something… Anyway, I don’t know. I’m hot beneath the collar. All right. You want to talk Apple?
Patrick Moorhead: Why not?
Daniel Newman: I don’t know if anyone… Gosh, there’s all the pundits out there that are so smart about Apple. I was told yesterday, I think I was having a good back and forth with Ben Bajarin and he told me that most people just don’t understand Apple. Don’t 100% know if that was a subtle dig at me or if that was a dig at the people that have gotten it wrong. They did a 25 cent dividend, they initiated and I said something in a tweet about, or an X post or whatever the heck we call these days. I said, “The lack of imagination of a company that’s got mid-single digit growth now that’s done more buybacks I think than any other company on the planet. And now is adding a dividend, is this how you’re attracting investors as opposed to innovation and growth?”
Patrick Moorhead: Isn’t that what IBM did for a long time?
Daniel Newman: They do, yeah. But that’s also why it’s a value stock and not considered a growth stocks. Is Apple a… It’s trading at 33 times forward, Pat, at single digit growth. People are upset with Microsoft, which is also trading at close to 33 and remind you, like I said, Amazon and Google are trading at like 20-ish. Again, we’re not an investor equity show. We don’t tend to talk a ton about those fundamentals and numbers but that’s an indicator of what people think the future looks like. That means that people really do believe that they are somehow going to be able to these services and monetize off this iPhone and that there’s very little regulatory risk around Apple right now, which I think that’s been true. They’ve skirted it for a long time. But here’s a bigger thing. This is supposed to be the iPhone 16 Apple Intelligence go bonkers moment and by the way, Pat, they actually did better on iPhone than we think but we’ve heard about all these revised down manufacturing numbers.
I don’t know because the report is a lagging number. Those rumors are a leading indicator of where things are going. I don’t know that people are running to the store for Apple Intelligence. I’m hearing semi-intelligent, partially intelligent, kind of intelligent. I think it’s a feature thing a lot like the IPC where people need to see these features. Good news is, I keep saying about Apple, if the features come, I think people will see something, an app, a tool, a capability that gets built and powered by the performance, the MPU and everything. And then be able to go out there and say, okay, time to get upgraded. It’s just not a hardware cycle like it used to be.
That’s at least my take. I’ve been beating that around all over. Anyone that’ll listen to me, I’ve been sending that around. But I think this creates more of an elongation to the cycle and I think it creates more of a patience within the buyer to not feel the obligation to run out right away and buy the new device, Pat. I don’t think any other numbers matter. I’m just being candid. I just don’t think any other number right now really matters. I’m looking at Apple, I’m looking at the newest device I’m looking at is Apple Intelligence being adopted. And Pat, they do have a tailwind that the features for Apple Intelligence aren’t even starting to roll out until what, April, I think, April May next year. So, there’s no incentive for that part of the market, but meanwhile we’re seeing China Huawei take some share. They’ve been doing a pretty effective job in that market.
And of course, there’s that ongoing tension in that market that will certainly not bode as well for Apple as it could. I’m not super down on it. I still use it. I still love iOS. I’ve already claimed that apps are dead, so as far as I’m concerned, apple has to build a killer Siri. I think people want a useful Siri. I think if Siri could be the super-agent that negotiates between you and all your needs on a daily basis, it could be really cool. I just think it’s not there yet. It was fine from Apple, dividends, fine, buybacks are fine, growth is meh but the 16 hasn’t met expectations in my mind. But that’s again because the expectations need to be spread out over a longer time.
Patrick Moorhead: Apple is in a precarious position, in a good position in that it has such a bunch of, I don’t even know if they’re dedicated followers. They just don’t want to go through the pain of maybe going something different. The smartphone has become a device that is like oxygen or it’s like opening up a bank account where you might hate your bank on certain things. Like if you can’t do wire transfers over your smartphone, Dan, but there’s so much perceived hassle of shifting vendors that you don’t want to do that. Apple is not the Apple, it was 10 years ago, five years ago, it’s not even close but it doesn’t matter unless Apple stumbles on things consecutively. And that’s what we saw with companies like Sony, Toshiba, the consumer electronics wizards or until something else comes along that is so far ahead that they hadn’t invested in. But when you have mag seven, mag seven can invest in almost anything.
On the other side of the mouth I’ll say, well, apple stopped investing in automotive, but if you’re Apple, where on earth is your growth going to come from? If it’s not going to be from smartphones? Even though the company was caught flat-footed by generative AI, does it matter? Go back to the beginning of the conversation, which is the perceived hassle of moving to a new platform, at least in North America and Western Europe are low. I’ll be very interested to see outside the future of North America and Western Europe.
You still there, Dan?
Daniel Newman: Mm-hmm.
Patrick Moorhead: Okay, because that is where people can flip between phones and Android has a much higher market share than in those markets. My gosh, they can flop with their AR glasses and it doesn’t even matter. Nobody cares. Until they’re caught flat-footed, it’s not going to be an issue. I got to you though. If they start to have low or no growth, it’s going to start to get ugly. The pressure is going to get on and they’re going to be forced to bring something out before they want to bring something out. That’s where you’re going to start seeing potentially some of the big mistakes here.
Daniel Newman: Yeah, there’s a lot there, Pat. It’s a fun one to cover. It’s fun to try to prognosticate. I think people sometimes call us critics. I think we’re just honest. Other companies growing single digit don’t get the benefit of the doubt that Apple do. And they’re not even growing high single. They’re growing like mid-single and they’re forecasting conservatively. Anyways, we got a couple more to cover. I’m on a tight timeline. I want to make sure we crush these for everybody out there.
Patrick Moorhead: We got 13 minutes, we got two topics. Can we do that?
Daniel Newman: Remember The Six Five when that was a real thing? We thought we could cover a topic in five minutes. Hilarious. Hey, Microsoft, buddy, what did you hear, see, what’d you think?
Patrick Moorhead: Microsoft for the quarter absolutely crushed it. In fact, if I look at the past four for earnings, they beat on EPS more than they ever had. And they matched the March of ’24 on revenue by about 1.6%. The market, they rewarded Microsoft by having a massive sell off, the biggest sell off in a long time here. What the heck happened? It was all about the guide. To me, investors just blew over the second half of the year discussion and focused all on the second quarter. Let’s just marvel at these earnings for a second. We talked about single digit Apple. Microsoft grew revenue by 16%. That’s $66 billion, increased net income by 14% to almost 31 billion. Oh my gosh. What about EPS? They increased it by 10%. God. The AI, right Dan? We always talk about the elusive AI number. I think the company said they’re on track. I think this was back in September that for the year, their AI would be $10 billion. What other company, Dan, can you think, aside from Nvidia, that said it has an AI of 10 billion for the year?
Daniel Newman: Yeah, nobody’s saying it yet. Amazon has hinted but they’re the only ones that said it. I keep telling people, Pat, you got to say it if you know it, say it.
Patrick Moorhead: Azure, oh my gosh, they must have had weakness in Azure because it’s such a large business. No, they ripped 33%. We were marveling about Google Cloud 35%, which is freaking amazing but Azure grew 33%. Likely, OpenAI infrastructure is in that. I think the data point was that Azure growth included 12 points from AI services. I guess simple math might be 33 minus 12, you get to non-AI but there’s a heck of a lot of AI in that Google number too. Oh, and gosh, we’ve seen enterprise SaaS in the single digits with the exception of ServiceNow, right? It must have been single digit. No, Dynamics 365 was 18% growth, which is rocking. By the way, not everybody’s enterprise SaaS is down.
We have seen ERP at double digits and ServiceNow is rocking it but this is all about the next quarter expectations. What’s so interesting to me is that even though their CFO has nailed almost every single thing that she has said, the investors just didn’t seem to buy into the second half, it’s going to get better in the second half story. I think what we’re probably going to see from the company, maybe it’s going to be at Chicago, more proof point to why the second half is going to be so much better than the second quarter showed it to be.
Daniel Newman: Why is the stock down? There was a conservatism about the guide. There was some conservatism about Azure guide. I think some CEOs and CFOs are smart enough to sometimes say, look, we have really, really fast growth. Let’s use this moment as a bit of a reset. They’ve had a heck of a run-up in the stock being able to continue to promise such growth. As you know, it’s always better to under promise and over deliver. You’ll either take the hit when you miss or you’ll take the hit when you guide. If you’re always up into the right endlessly, you’re probably on a very lucky run but that’s just not typically sustainable for long periods of time. We actually didn’t talk about Meta, which had a pretty good quarter too. But Meta also got punished because it seemed a little bit cautious in its guide.
Again, that tends to be its way of doing things but then it continues to beat and outperform. And by the way, Meta, what a great story for using AI. Talk about a company, Pat, you maybe asked for one that’s getting dollars from AI. They’re getting it actually by building it into their own products for advertising purposes and doing a pretty darn good job of it. When it comes to the cloud side though, Microsoft is unique in being able to forecast a number and really communicate a number that’s getting from its investments in AI. Pat, we haven’t talked about it much on this show, but another thing that markets have been looking really closely at is CapEx. So, the company forecasted that the CapEx spend is going to be somewhat similar going forward, which people wonder is that boding well for Nvidia or not?
But with Nvidia’s Forecast suggesting that it’s sold out of everything they can pretty much make for the next several quarters, it seems like they’re going to do fine but is CapEx leveling off? And one of the interesting things I spent some time on this week too is understanding that CapEx number. A lot of us like to throw it around and talk about it like it’s all GPUs and networking and data infrastructure, it’s not. It’s also real estate. It’s thermals and power. It’s leases and land. It’s a lot of different things that are going into these CapEx numbers. But these companies are all in on building out scale, capacity and data centers. Pat, the word came out from I think all the cloud CEOs about capacity constrained on Ai, meaning they all need more. If they had more, they could sell more. That means their price and demand control is still pretty good.
It means they’re still probably able to get a somewhat decent premium with Blackwell coming in. Questions will be about H series A series. What happens on their ability to price these things? And then of course, how quickly do these various companies stand up their own. In Microsoft’s case, Maya new product just coming to market, how is that going to fit into their cloud strategy? Do they make more money by vertically integrating? So much there Pat, but it was a good quarter guide is always a bit of a gotcha. You hit it all pretty well. And again, you got across the company. Not much mentioned on the surface in AI PC side still. We’re going to just have to keep waiting on that one but the performance looks pretty good, So we’ll see where that lands. Pat, we got what?
Patrick Moorhead: No, I’m just marveling. By the way, talking about marveling, let’s go to Amazon.
Daniel Newman: I was a little swoon, I’m not going to lie. I tweeted some things that almost again, I got to be neutral but you got to be almost a little bit of a fanboy about some of the numbers.
Patrick Moorhead: I’m wondering too, Dan, with all this mag seven action, how do you compete as a smaller company?
Daniel Newman: You don’t.
Patrick Moorhead: How?
Daniel Newman: I don’t think you do. That’s why I said they can buy in any market they want. It’s-
Patrick Moorhead: I got to tell you, current course and speed, these companies are going to get broken up. They are.
Daniel Newman: They are but they aren’t because they will, but a ruling doesn’t actually break them. Up as we’ve seen, it takes a long time to break them up. And by the way, the interwebs, unlike telephone poles, how do you break this up? How do you break up the Apple ecosystem? How do you break up the Amazon ecosystem in a way that’s by the way, not harmful to the consumer itself? And that’s why I said the bifurcation of consumer harm and competition has never had more of a diametrically opposed force right now than it does. People like iOS, they want to use their Amazon advertising, they want the benefit of its supply chain and its networks and its price efficiencies. They want to be able to use search and they want it to work well. But at the same time, it’s making it impossible for companies to come in and build things that are competitive. And you know what the litmus test will be? It’ll be the perplexities.
Can they actually come in with a good product, enter a market and meaningfully grow? Can they even be acquired if they want to be? And who could acquire them? Who’s even allowed to play in that game? And I don’t know. I don’t disagree with you philosophically, Pat, I think you and I are aligned. I just don’t know if they can actually do it. If they can actually break them up. The depth of the technology. Pat, these people can’t even understand the code. These algorithms that run these things. Europe is like, “We think we’re finding you because you are preferencing your own products.” Okay, prove it. Prove that how that’s working because you got to actually be able to understand the algorithms and then you actually have to be able to control them and know what they look like at the moment something’s happening. It’s very complicated. But Pat, here’s the thing, Amazon as a whole, strong results. They forecast it even though they had one week and less than normal between Thanksgiving and Christmas, still going to have very strong retail results. The average-
Patrick Moorhead: Wait, wait, wait, wait. Are we moving to Amazon?
Daniel Newman: Yeah, I already did.
Patrick Moorhead: Okay. The Chiron didn’t move. I thought we were still talking about-
Daniel Newman: No, sorry. I had moved. Are you with me? Everybody, don’t worry.
Patrick Moorhead: I am now.
Daniel Newman: This is like a Pat calendaring thing. I didn’t give him the calendar then couldn’t keep moving. Pat, we’ve calendared over, we’re on Amazon now. I’m kidding.
Patrick Moorhead: Daniel, I think you’ve learned in the last 48 hours the importance of calendaring.
Daniel Newman: Yeah.
Patrick Moorhead: I’m just going to leave it there.
Daniel Newman: Cost us a Lambo. Anyway-
Patrick Moorhead: Are you kidding? A third of a Lambo.
Daniel Newman: A third of a new one but it could definitely be a used one. Anyways, the net-net is Amazon, as I was saying, they have a shortened period between the holidays. It doesn’t seem to be affecting them. The retail forecasts look good, advertising juggernaut. And that’s why I said, what are you going to do break up Google and then all the ads go to Meta and Amazon? What happens? Like they’re going to go to DuckDuckGo. The net-net of it is that we’re seeing advertising move in new directions. AI is changing these platforms. People are adding AI into these social experiences and the numbers just keep running in a really great direction, Pat. The AWS number, which is a hot topic, was 19%. How do you sort of negotiate in your mind that number when you got 34, 305% but you’ve got law of large numbers.
So, they actually by the total revenue amount, being about twice the size of the other two clouds. They actually grew by the same amount of billions, but they didn’t grow by the same amount of percentage. And inevitably that means market share gains. Now, we also know that nobody reports the same way. Amazon doesn’t stuff its number with a whole bunch of its own product. It doesn’t have its own big cloud productivity application suite that are all in their numbers. That’s a little different than the others. And that’s obviously impacting growth that they don’t have that all inside of one number. By the way, when you look at Microsoft’s Intelligent Cloud number, it’s more like 22% versus its Azure number, which is bigger because it contains more parts. That’s been a problem for a long time for people to understand. It remains a problem.
But Pat, let’s put the growth aside. I think that there is, obviously people are not going to be… Well, people are loving this number but people will always use the comparisons in some way to talk about market share. But what about the profit margin? 38%, Pat. On a 27.5 billion quarter, they made $10.5 billion in profit. This isn’t Hock Tan good but it’s getting there. It’s really, really good income contribution from its cloud business. And there was other things I think Andy Jassy said on the call, don’t quote me. I think he said, triple digit percent gains in AI impact. I just don’t know what the baseline is for that. We had the $10 billion number from Microsoft. What I want to hear is what does that mean? Because it could be like it went from a dollar to three and that’s triple digit percent growth.
We know that’s not the case but what I guess I’m getting at is between hardware, software, silicon, instances, serverless, all the things that they’re doing where AI is impacting their businesses, what does that number look like? I’d really love to know that. You actually spent time with Matt Garman twice. We got him on our pod. Check out that episode if you haven’t already but I’m going to leave it here. I know we’re at time and I need to give you a few minutes to chime in on this too. Pat, it was a really good quarter. Amazon is a juggernaut for sure, across the board. And to your point on the last one, these companies are so powerful. They’re so strong and they’re so diversified. It’s hard not to like them, especially because they traded a much lower forward than say Apple.
Patrick Moorhead: I’m going to focus on AWS here. Those margins are astronomical. I remember my mental model has always been 30% op inc but the 39%, 38% is just completely astronomical at a point that you’re investing. I know R&D is below the line but there’s a lot of expense above the line. What are you smiling at?
Daniel Newman: I just saw a funny thing pop up.
Patrick Moorhead: Okay. A lot of investment that goes in into COGS for AI. I actually met with Matt Garman on Monday. There are some things I can’t talk about, there are some things I can talk about. And we did talk about the growth rate and the law of large numbers. If you look at the quarterly increase that they have either year over year or quarter-over-quarter, it is larger by a very large factor of any of their next closest competitors but the fact that they ripped out the growth that they did given that scale is pretty amazing. I do think that Microsoft got the jump on generative AI. AWS got the jump on Microsoft for machine learning. They have more machine learning customers than Microsoft. I also think, and I appreciate you correcting me in a podcast that we did where I said, generative AI is a marathon. And I think you said it was a sprint or you reminded me-
Daniel Newman: I said it was race-
Patrick Moorhead: Yeah, I appreciate getting checked by you live all the time.
Daniel Newman: Does that hurt your feelings? You going to be okay?
Patrick Moorhead: A little bit.
Daniel Newman: I know you’re skinnier now but don’t be small. Okay?
Patrick Moorhead: I need my mommy. But no, but anyways, let’s just say that AWS or Amazon was later, it doesn’t matter. When you’re Microsoft and you jumped on the AI bandwagon, freaking intelligent way to get this going. As we talked about Google, they essentially invented generative AI with the first research paper on it. Had a lot of stumbles, decided not to get into it. But yeah, people shouldn’t read too hard into this AWS late with generative AI. I think it is noise. By the way, that’s not to take anything away from Microsoft. They deserve a lot of freaking credit for that. I just don’t know long-term if it’s going to-
Daniel Newman: Let’s be clear, Pat. There is a buy, build and sort of hybrid model. Microsoft was smart on the buy of buying their way in with OpenAI and being able to go really fast. Google built and Amazon is doing something in between because it’s been building silicon and building network. So, what I’m saying is each is just taking a different approach.
Patrick Moorhead: Got you. Yep. All right, Dan, I’m going to shut up and get you to your big corporate meeting.
Daniel Newman: Yeah, I got a lot of corporate meetings this morning. Very excited about that.
Patrick Moorhead: By the way, I do too. I got to run.
Daniel Newman: It’s fun to be in corporate meetings. I feel like it’s way better than talking tech with my bestie. But in all seriousness, everybody, thank you so much for tuning into this episode. We got a lot of it. I would’ve liked to have been able to dive into Meta, like I mentioned, Commvault, the other smaller tech companies that reported. There were some good stuff in that, but we do what we can, Pat. We can’t cover six topics in an hour anymore. We are just so full of it. What can we say? Anyways, hit that subscribe button. Join us for all of our other content, be part of our community. We appreciate all of the viewers here on The Six Five. See y’all later. Bye-Bye.
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.
