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:
- OpenAI Announcements On GPT-4 and 4o
- Google I/O 2024
- Cisco Q3 FY24 Earnings
- Dell AI Server Orders
- AWS CEO Change
- IBM and Palo Alto Partner on AI-Powered Security
- Synopsys Sells Off Software Integrity Division
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. It is Friday and we are back for another episode of The Six Five Podcast, episode 217 and I am manifesting us being one of the 20 most listened to podcasts in the world. I’m copying other people, but it’s quite well listened to. In fact, I asked Grok about it and it told me that it is quite an influential podcast, Pat, and Grok is never wrong, neither Groq with a Q or Grok with a K. So Grok says you’re kicking butt. It means you are, but Mr. Moorhead, I’ve been overseas, I’ve missed you. I haven’t been texting you in the morning as much as you like, and I know how you like to wake up in the morning and get that morning, “How are you doing bestie?” text from me, but you’ve had to settle for random texts at random times. I don’t even know what day it is. Yesterday I went to an event Pat and checked this out. I said, is today the 13th?
Patrick Moorhead: Oh, my gosh.
Daniel Newman: It was the sixteenth everybody. But the good news is I found my bearings, did my thing, had a great week. Been to London, been to Chicago, saw my mama, got home. Pat, how are you doing today, buddy? How are you, other than missing my texts?
Patrick Moorhead: Man, I’m doing great, Dan. I’m pulling 12, 14 hour days like you. It’s exhilarating. I mean, there’s so much going on here and there’s only a few things I can count on and one of these is The Six Five Podcast at 9:00 AM Central every Friday with my bestie. Doing well. I’m seven weeks into an eight-week gut restoration project and I just have to take the wipe out drugs for another week and then I’m going to start rebuilding my gut bio.
Daniel Newman: Well, you got to love that. I mean, I know it’s been beating you up a bit at times, but from what I understand and after a 14-hour-long or what felt like that, it was actually a 30-minute lecture from my dad about food is killing me. He actually was talking about the same thing, gut health, and so we’re hearing more about it and of course we hear it on some of the podcasts we listen to. I know you’re a big Huberman guy, but there’s a lot of focus on gut health and in relationship to longevity. And when you want to be the world’s most important analyst like you are, you need to be alive. That’s really important. And so as you’re getting older, what are you now about 35. You need to be able to survive into your 40s in terms of being able to become a great analyst, Pat.
But no, we got a great show today. We got so much content to cover. We may even have a bonus topic today. I don’t know, but we’ll call it The Six Five with a bonus or the Seven Five. I mean, it depends. It’s all marketecture. We’re going to talk about open AI, some big announcements this week, a new rollout of a product, Google I/O. Cisco had earnings, that’s the only earnings we’re going to talk about this week. Then we’re going to hit on Dell AI server orders and why their stock went parabolic this week. Geez, that’s a crazy run by the way. AWS just, I don’t know, just happened to announce a change of A CEO this week, kind of a big deal. Unexpected? I don’t know. We can talk about that. IBM and Palo Alto partnered up on some AI powered security. We’ll have a brief hit on that one, and then we’re going to dive into a synopsys divestiture that’s been out there a bit, but we’ve wanted to and hadn’t gotten to it. We’re going to get to it this week.
For everyone out there. If this is your first time listening to the podcast, we have no idea what you’ve been doing. It’s a huge mistake. We are glad that you’re here to correct that with us this week and make sure you hit that subscribe button because we’d like to have you for all of our shows each and every week, and then all the events will be out over the next few weeks, which will be bountiful, plentiful, but we cover six topics, five minutes each, sometimes seven, sometimes more than five minutes each, but it’s thematic. This show is for information and entertainment purposes only, and while we will be talking about publicly traded companies, don’t take anything I say as investment advice. I’ll let Pat make the determination if he wants to offer any investment advice. I don’t think he does.
By the way though, Pat was offering some pretty damn good advice this week in New York on the sets of Yahoo Finance, CNBC. Check out the Twitters, he was there looking good, looking skinny. I know you don’t like when I talk about that publicly, Pat, but you’ve definitely looked like half the man you used to be, but twice as energized. Let’s get started. OpenAI or ChatGPT for what’s going on?
Patrick Moorhead: Yeah, it’s literally been an incredible week and just for a little bit of backdrop here, if it’s not evident, the frothy, generative AI discussions, tech enablement and end user benefits are just alive and well, and everybody’s doing this amazing judo move. You have upstarts like OpenAI who are backed by Microsoft. You have the stalwarts of AI like Google and Microsoft, and on the consumer side, it’s super frothy. We’re going into Build next week for Microsoft where I’m sure we’re going to hear their next play, and then we hit WWDC in June, which shows Apple’s Play. So OpenAI made some major announcements the day before Google I/O, which we’re going to talk about.
First of all, it was just an amazing array, live demos. Sure, there were some recorded ones, but it was literally the demos that were during the event were live, which I super appreciate, and they came in multiple buckets. People were speculating, “Hey, would it be a Google search competitor? Would it be GPT-5?” It was none of those. What it was is GTP-4 making-
Daniel Newman: O, O?
Patrick Moorhead: Well, I’m getting there. GTP-4, we can start with 4.0 if you’d like.
Daniel Newman: No, I just wanted to do the O. It made me think of the movie Office Space. Anyway, never mind. Get back to that.
Patrick Moorhead: So yeah, the biggest news was GPT-4o for Omni model, which I like to call multimodal, and that’s the combination of text, voice, image and video all combined, and there was this incredible voice overlay on top of that, which from the demos is absolutely remarkable. Now, I thought I was using the enhanced voice mode when I chose 4o, but in fact I wasn’t. I was using the logic part of that, but not what some people are considering this flirty and funnier version. Some of the notables here, a macOS desktop app came out, which by the way is a lot harder to shut down than a, actually almost impossible to shut down versus let’s say an iOS or Mac or iPadOS application. Does not currently touch the neural processor on Apple, but maybe we’ll see that at WWDC.
Other things came out. They talked about having a 100 million paid users, which is pretty awesome. So from a monetization point, GPT-4o is free and so is GPT-4, which is a huge delta. What you do get is you get a bigger context window if it’s paid. They also made major enhancements to the API. It’s 50% cheaper and 5X the rate limits. So Net Net, this company is going for it, it recognizes the large company threat and they’re trying to build as many users as they possibly can. And like I said on Yahoo Finance, if you can tap into that monetization stream, I think I said this on CNBC too. Once you can get enough eyeballs on it and people using your product, you can then go and monetize it and as we’ll discuss, Google might be behind, but it’s not a night and day difference.
Daniel Newman: Yeah, you hit a lot of good points there, Pat. I mean, I can’t help but think one is, you know how Satya wrote that thing? We’ve got it up, we’ve got it down, we’ve got it right, we’ve got it left, we’ve got it surrounded. Yeah. Satya is a badass, by the way. Don’t mistake. Anyway, he seems really nice, but he’s a badass. He’s built an amazing company and of course Microsoft’s going for it too because they’re going to build their own. They’re going to have open, they’re going to let everything else in. It’s why they’re getting market share. The interesting thing though is with this stuff on Apple that we’re hearing about them getting Apple natively on the device, think about how OpenAI has made itself a complete moat in between the two biggest companies in the world and they’re creating this codependency.
It’s wild how this thing is kind of evolving, and man, Sam is boring. He is so boring. I listened to him on the All In. I mean, it was the worst guest visit ever. I was listening to it like two in the morning driving between San Antonio and Houston last week, excited because it’s like, oh my gosh, Sam Altman is on the pod and this is pod All In, the one I listened to pretty frequently and it was terrible, but the setup for the surprise was really, really good. I mean, the 4o demos are mind-blowing. They’re very interesting. The rapid innovation is hard to digest how quickly we are evolving. If you look back at the original GPT, it was actually really terrible. The answers were bad, the data was old, but the concept was good, meaning summary abstract. I tell everybody-
Patrick Moorhead: Image creation through DALL-E 3 was good.
Daniel Newman: Yeah, I mean, they’re doing awesome stuff. Sora was trained on YouTube or whatever it was, but New York Times, there’s all these interesting sort of nuances there, but I mean, where we’re going is really interesting. It’s pretty fun and exciting. But listen, I mean they are disrupting. They’re bringing contrived empathy to the platform, and I call it that because it’s not real. Everyone just understand that she might be flirting with you, but she doesn’t love you. The movie Her is a great movie to go back and watch because it’s going on, but it is wild to how quickly this is proliferated from a new way to organize searches into a single to now basically doing your kids’ homework. And so congratulations to OpenAI. I mean, look, the building and what I expect the innovators to do around this will be really interesting. Of course, it’s a lot of closed architecture, so there’s not a lot that others will be able to build in excess, but it does also start to show the possibility, which will create all kinds of energy in the open source communities to figure out how to build some of these capabilities on top of Llama and other open source models, which I expect to grow as well.
Now, nobody’s commenting on the amount of power this thing’s going to use, and so I’m going to keep going back to that. Pat, I have no idea how we are going to power the proliferation of these large language models. I can’t quite figure it out. And it’s like a 100 times more energy when you’re doing a search on these things then when you’re doing a Google search. So how do we have the entanglement of these two things to not use generative for everything until we have some way to deal with that situation? Can we talk about nuclear fission? No, we’re not going to talk about it here, but we’re probably going to need to pursue that at some point. I don’t see how else we’re going to get the grid to support all this. I want to go down a total rabbit hole. We don’t have time.
Let’s bounce to the next one, which is Google. And by the way, this is really interesting because clearly OpenAI was playing on the fact that Google I/O was coming. They wanted to get ahead of it. They wanted to create a major buzz, a major wave. Mission accomplished, took the I off. By the way, best tweet of Google I/O was Tech Crunch. They put out a 45-second review that showed every executive saying AI, that was it. It was just AI, AI, AI, AI, AI, AI. And it was like 45 seconds straight. I think the Thomas Perry and keynote had like 102 AI comments in it and then obviously across the entire presentation. But Google didn’t just release a couple of things. It was 100 things that was released. So there’s no way we can cover the gambit.
I want to talk about a couple of things that caught my attention, and by the way, Pat, I don’t think GPT-4o got that far out ahead of what Google presented. I think they both presented a lot of the same kind of capabilities in different wrappers, and so they’ve got the next generation of Astra or whatever they call their project Astra, which is the AI agent for life. It’s basically able to reason, respond, live audio, video. It can take a pixel recording, it can handle and engage with a live feed. It’s multimodal. I don’t think they showed it as something that could be interrupted, which was really an interesting thing. Did you mention that by the way?
Patrick Moorhead: No, I didn’t.
Daniel Newman: That was a super trippy thing in my opinion, was the ability to multi-turn these things, but actually change the direction of the conversation midstream. So that’s a really interesting thing that they rolled out. I don’t think it’s actually available yet, though. I think it’s in demo and beta, but it sounded really interesting. Another thing they did show, Pat, I don’t know if you saw this, but do you see Notebook LM? It’s an interesting note-taking app, but it’s helping kids with homework. So it’s basically taking notes and then being able to take the info and then be able to go out to a model and have the model help the kids further understand, transcribe, interact. So it’s not exactly like the tutor mode, which was pretty awesome, but did make me cynically ask a question, Pat, is do we even need college anymore? I am really just about to send my kid to Baylor. I’m not quite sure what I’m paying for. Put a screenshot of the problem and have a personal tutor walk you through the problem-solving.
Patrick Moorhead: Maybe you’re paying for the frat parties.
Daniel Newman: Fraternity, right? You’re not supposed to say frat. I don’t know. We’ll have to ask Connor. I think he was a fraternity guy, wasn’t he? My fraternity, I was in it for like a minute before I had my kids, so I never learned that, but I remember being yelled at for saying frat once. So another really interesting one was in my opinion, was the search video. So being able to basically show an image or show a video search and then have it be able to answer questions about it. By the way, I don’t know about you, Pat, but yesterday someone showed me this was a GPT one, but someone actually showed me a demo.
So I spoke yesterday at this Kearney Future of Product Summit. They took a picture of me on the stage with about five other people and they started asking a question about where are we? Who’s up on stage, what is this event about? And my gosh, it was crazy. Just images, just took one image. That was it, and it was able to do all that work. So this stuff’s moving really fast. And then the last one I’ll say is their Veo video was interesting to me. The Veo video product, which was their take on of Sora. I don’t know how quick that’s going to grow, but Google has the data. Probably less controversy on where their data’s coming from with YouTube, but those are four or five things to me. But overall, I don’t know that they got on parity, but I don’t think they lost their lead in a meaningful way where people were like, holy crap, Google’s out and OpenAI’s in. But the consensus out there is that OpenAI’s a little bit ahead.
Patrick Moorhead: It’s interesting. One thing I pointed out on CNBC is the big difference here between Google and OpenAI is Google actually has to make money. Now, Google can not hide what they do, but they can cover losses from areas that are super profitable. But like you said, and whether it’s a 100X differential like Sundar said, or a 10X differential like I’ve heard between general machine learning, and by the way, I think Sundar, that comparison is generalized indexing and search versus doing the transaction on generative AI. So yeah, they actually have to make money and if they were going to go get rid of search and go all generative AI, their costs would skyrocket. And I think that’s a key here.
And Google did what you would expect is they refined what they have out there, very similar to the way that 4o is more efficient. They brought out Gemini 1.5 Flash that was optimized and it has a longer context window. And then on 1.5 Pro the increased context window to 2 million tokens… By the way, it’s so confusing because Pro isn’t even lit yet. I’ve been a Google backend customer for 13 years and I keep waiting and it seems to me that these features hit a year after Google brings them out, and it’s frustrating. I’m using Gemini Advanced Personal, paid on my own personal Gmail, but I can’t even get that capability on my Workspace account. Yes, I know it’s not all about me, but you can imagine-
Daniel Newman: Wait, wait, wait. Wait, what?
Patrick Moorhead: Yeah, well it’s not always about me, but it could be.
Daniel Newman: Well, there’s less of you to be about nowadays.
Patrick Moorhead: Exactly. And I couldn’t help but it being a really interesting turn here because when Google first started out, they had no advertising and they were giving the best search away for free and investing a ton of money and very similar to what we’re seeing with open AI. And at the time the Google of the industry for things like search and advertising wasn’t Mosaic in the open internet because it sucked. It was America Online that you would pay a service fee to go in and get all of your information. That was very much monetized. Steve Case was the founder, by the way. So yeah, I’m seeing some really interesting parallels here. And the way that I look at this is that Google doesn’t have to be first. They just can’t be too late with their capabilities.
I’ve seen some issues with Gemini as well on recency. And so for instance, I did a search on Google Cloud Next 2024, and it told me it didn’t even happen yet, which is just weird because whether it was Bard or just Gemini up to that point had plugged into real time events. Overview in Google search is this first foray, well second foray into this where once you do a Google search, you’ll get a content block called an AI overview, and that might be at the top, it might be at the bottom, it might be at the middle, it might be interspersed with the BlueLinx, TBD, but I do think Google did enough to take a lot of the worry out of it.
So I think as soon as true 4o gets out there and multimodal, which it’s not, which it competes with what Google’s calling a project called Astra, that’s when I think we’ll see how far behind and the ability for OpenAI to siphon off Google use. By the way, for the record, there’s more paid OpenAI users than there are Gemini users out there, which was a real shocker to me. But ChatGPT is like when Facebook first came out or some new follow-on social media site, it’s gone absolutely viral.
Daniel Newman: All right, we good? We got that one. That was a lot. Hey, these two things, by the way, were so big, honestly, we could have done entire shows on each of them. We’re going to go a little bit quicker here because I mean we don’t have any topics that are quite as cool as those two. Pat, will we ever get to talk about anything but AI again? Is it over for us?
Patrick Moorhead: No, I think we will. These things all come in phases. We were talking about the hybrid multi-cloud forever and ever and ever and ever before generative AI came out and then before that it was machine learning.
Daniel Newman: Yeah. Well, why don’t we talk about something that isn’t directly just AI. Let’s talk about a pretty solid quarter result for Cisco.
Patrick Moorhead: Yeah, a little background here. If you look at how Cisco had done historically, previous four quarters had beat on EPS and beat on revenue. The big surprise though was last quarter’s guide and the reason that they had a beat-beat for this quarter is because they beat the lower expectations and the stock, at least in the after hours was up 7%. But it’s all about the digestion of the amount of networking equipment that they sold in. A couple of highlights for me, software, big percentage of revenue, over 50%, I think 54%. You combine software and services, 65% of revenue, and that is just an astounding turn of events.
When you think of Cisco, you think of network equipment, they are 65% software and services company. And sure, part of that is network as a service, some of that as security service, but it’s a services company, baby. I mean even Amazon is infrastructure as a service and PaaS and things like that. Final comment, a change here. Gary Steele is now president of Go-to-Market and he’s basically the chief revenue officer. Unclear if he’ll get all the marketing capabilities as well, probably the Go-to-Market capabilities beyond the brand. But Gary Steele, we’ve had him on The Six Five many, many times. I’m interested to have a conversation with him.
Daniel Newman: Yeah, I think that was a nice consolidated messaging on what’s going on there, Pat. Look, there’s a lot of positive in the quarter. I mean, of course, on a year-over-year basis, a lot of people, it’s interesting because it was down revenue wise, somewhat precipitously, but the business is squaring off in a way that I think is really, really positive. There was the right growth in the right area. So for a number of quarters in a row I’ve been talking about you have to watch the subscription and the ARR metrics. The market wants to understand is this company making the pivot? Now, of course it’s great that the Splunk revenue is now included.
So the company’s ARR revenue is at $29.2 billion. That’s not nothing. And with Splunk, they’re up 22% year-on-year, and the product ARR is up too, so they’re able to add subscription to the products they’re selling. And that’s up 44%. And now Pat, the other thing that’s interesting, and you said this, but 54% of their revenue is subscription. They’ve made the pivot everybody, this is not a hardware box company. Now the way stocks been valued is kind of like it is.
Patrick Moorhead: Exactly.
Daniel Newman: And so this is one of those companies that has really changed its tune. They’ve met and done what they’ve promised they would do to the market and they haven’t really gotten a lot of credit for it yet. And so I put it in a category of companies that people need to be paying attention to because they’re executing on their plan. The Splunk thing will give it more visibility there. And I like the move with Gary. I know Gary very well. I think he’s going to come in and do a really good job. That meant Jeff Sharritts is out after a very long tenure there. But you know what? I’m sure Gary will come in, he’ll bring the energy, he’s going to bring growth. He knows how to grow businesses. He’s got the track record and obviously he delivered Splunk to Cisco, which was a big deal too.
Last thought on this one, they did beat-beat rates. So while he did say they were down, they did beat-beat rates and right now, I swear the guidance is everything. You and I constantly go back on these earnings conversations and we talk about the what’s it, why is it down so much? Why is it down so much? They did great. They beat, they beat, they beat. Well, the problem was they also want a raise, didn’t get a raise. So all right, they got it all, stock went up a little bit, but I still think the company’s probably a little bit undervalued for how important it’s to the network, to the Edge, to the branch, to the whole opportunity as well as security and also just where it evaluates for how much subscription it now has.
All right, let’s move on. Pat, you and I both, I think put out a victory lap tweet in some ways that we’ve been saying for a long time that Dell is misunderstood, misvalued. We obviously know the top execs there very well. We spent time, I spent time with Michael and Jeff and the leadership and I’ve had the chance to really get to understand their vision on AI and the business and our findings have been that they’re playing nice, but they’re winning. And so this week the stock actually went up to $152 a share. It was named a top pick by Morgan Stanley based on its AI server demand. But furthermore, Pat, the stock is up five fold from a year ago.
Patrick Moorhead: It’s up 100% over six months.
Daniel Newman: But I mean it was $35 or so at some point in 2023 was what it was trading at. So it has had this amazing run. They’re expected to have $10 billion in server revenue. The shares are up 99% in 2024, and they’ve seen an incredible rate of growth, only Supermicro as an OEM has done better. And so that’s basically been a byproduct of Jensen Wong walking the floor of the NVIDIA GTC event. I can’t quote him, but he basically said, and I mean is he the godfather now or what? But he basically pointed at Dell and said all the things you need to build your AI factories you can get from Dell Technologies.
So whatever they did, magical. And obviously I think next week, what is it, Michael and Jensen and Bill McDermott are getting on camera together. Maybe the only video that’s maybe a priority over a Six Five video, where by the way, Bill McDermott is going to speak and Jensen and Michael have spoken in case anybody hasn’t signed up for that yet. It’s pretty awesome, isn’t it, Pat? So Dell is there, oh, the quote in the CNBC article by the way is “Michael is here and he’s happy to take your order won.” Wong confirmed. I don’t know, Pat, great for Dell, we’re heading to Dell Tech World Sunday nights because we love working on the weekends.
Patrick Moorhead: We do. We love that. I love that.
Daniel Newman: But if we’re going to do it, we’re going to do it for the coolest and most exciting tech companies on the planet. Dell is now one of them.
Patrick Moorhead: So Dan, a year ago people were asking us, is there anything above Microsoft when it comes to this generative AI? And Google was in the mix and then they had stumble after stumble on Bard and even some of the demos were being questioned. But the big question we got was who are the next wave of people who could benefit? And the companies like IBM and companies like ServiceNow and folks like that, when it came to infrastructure, we were talking about Dell. So you have Supermicro and investors realized that’s an AI Play for the hyperscalers, but who is the AI Play for the tier two folks and the on-prem folks? And given the openness to the company to talk about that giant backlog of AI servers that they had that Jeff Clark rolled out, and then a couple quarters after it started to click in, the gear went into place, boom, here we go. And the stock is cooking and they’re being rewarded for that.
So to me, it’s a very simple equation. Dell said they were going to be part of this and then they are part of this and investors are baking that in. And if I compare, Lenovo isn’t getting as big a lift on that. HPE is going for value, not volume. So we are where we are.
Daniel Newman: Yeah, I think that’s a good assessment and I know I took a lot of the oxygen on that one, Pat, but I had fun. I tweeted something about it, got a lot of engagement on it because basically mind blown, dude, I don’t even know what to say. I mean, you and I have at times postulated about the fact that these OEMs just are, they don’t move a lot. Cisco and Dell and HPE, but Dell has absolutely separated itself right now from the pack in terms of the way the market is treating it. It landed its AI message, it did, it got it done and good for them. I mean, it showed that if you get it right and you get Jensen to give you a little bit of an anointment, you can see your stock go up 500% in less than two years. Amazing.
Hey Pat, you and I were both thrown off. We had a bit of an exchange over the pond about a big, big shift that’s going on at AWS. Adam Selipsky is stepping down as of about what two weeks from now, Matt Garman is in. You know Matt well, you’ve worked with him over the years. What’s your perspective on this?
Patrick Moorhead: So everybody, not everybody, but the instant any senior executive steps down, a lot of questions happen and that’s just natural. And the first thing I do is I go look at the public statements to determine what the story is, and 99 times out of 100, if the prior executive is not quoted in there, then there’s something wrong. They’re either leaving the company, there were improprieties or they were fired suddenly. None of that happened. In fact, there was a three part blog from Andy Jassy, Adam and Matt coming in there, which it seemed very planned to me. And then when I connect this to this off the chain, amazing performance they had the quarter before then it looks more like a plan.
And by the way, Matt may have been in charge of sales and marketing, but this guy is a product guy. Okay, go look at his LinkedIn. He was the first product manager for EC2 and he ran product management and product marketing. He’s a product guy, he’s not a marketing guy, he’s not a sales guy. But to me he had to punch that ticket to give the permission to get the big role. There is a question on whether AWS is gaining AI market share or losing AI market share. It’s really hard to determine if you look at just the overall numbers for AWS, and I think it’d be hard to parse out IaaS from PaaS, but IaaS and PaaS are peanut butter and jelly. I’m okay with that, they gain market share and by the way, Azure in some measurements gained and some they lost. So it is murky as heck because that would be the only thing, if Andy didn’t see the generative AI progress that he was looking for and the company was looking for. Can I tell you one thing though, Dan? I am super-
Daniel Newman: You can tell me more than one.
Patrick Moorhead: I am super excited to see. I always loved Andy Jassy’s, previews of AWS. It was one slide per offering, core value proposition, customer problem they were solving, what their solution was and what the impact. I might be a CEO of an industry analyst company and a couple other co-founder, but I’m a product guy. I freaking love that. That’s exactly what I want to see. I think with Garman coming in, I am hopeful that that’s what we will see. It’s a simplified message that’s about products.
Daniel Newman: Yeah, so I am going to take a little bit of a market approach here and just give a little bit of perspective as to what I think happened. And of course this is all speculation. I mean we never know 100%. First of all, Selipsky did a very good job. This company got onto $100 billion run rate business under his tutelage and being the succession CEO of Andy Jassy, now the CEO of the company, that was not easy shoes to fill because this was his baby. He may be taking on the larger Amazon now and being the CEO of the whole company, but you have to be sure that he’s watching that thing very closely. I’m sure he feels very personally attached to that business and the growth of the business.
Pat, you mentioned about are they gaining, are they not? I actually don’t think it mattered. I do think the out in the decision for the transition had to do with the perception that AWS had fallen behind on AI. It didn’t actually have to do with the fact of whether or not they’re growing or not. I actually believe they’ve done a good job. They’ve done a lot of catch up with AI. They’ve made a lot of good moves, the Anthropic moves what they’ve been able to build in-house with Q. But the perception right now and the market share data is showing that both Microsoft and Google over the past several quarters has gained market share and AWS has somewhat flattened out overall.
Now, some of that market taking actually was from the smaller providers. It wasn’t actually all from AWS and when you look at that closely, but the fact is you are at the rate of growth, meaning just the fact that Microsoft is growing at almost a 2X rate. There’s only a few more quarters before technically speaking, Microsoft will become bigger than AWS. And again, the way Cloud is calculated is opaque. It’s not very clear. We always gave AWS a bit of an advantage because it’s also seen as the true pure IaaS where others were cooking numbers slightly differently.
Bottom line though is AWS can’t fall behind. That will be an absolute damning moment for the company. The change I think had something to do with accelerating it. Also, I can’t help but think it had something to do with the decision not to go all in with DGX and NVIDIA. It was a bold decision. I don’t know that it was the wrong decision for AWS monetarily, but from a perception standpoint when everybody was running to NVIDIA, AWS had to deal with the resistance, ended up changing its tune to some extent later and I think that decision looks like it might have caused a little more consternation with some of the customer adoption, leading more people to move some workloads to Azure and Google as well. So a very interesting moment. Good luck to Matt. Congratulations, Adam. I don’t think people realize what a big job you’ve done and that warrants some consideration. We got two more topics, eight minutes.
Patrick Moorhead: Dan, are you tearing? Did you just tear up?
Daniel Newman: I mean, as a guy that’s probably going to get outed of this company at some point for a real CEO, I sometimes get a little emotional.
Patrick Moorhead: Dude, you’re praying about that buddy, because that’s going to do good things for you. You’re not going to be choked up.
Daniel Newman: What did I read yesterday? The happiest people on the planet, as soon as they’re done making their money, they fall off the grid and they just go somewhere and take their money and be happy. So if I can sell this thing, I’m going to Barbuda.
Patrick Moorhead: That’s great, dude.
Daniel Newman: I don’t need to tweet anymore. I don’t need people to yell at me and tell me what I can and can’t tweet about. Go FY or whatever you’d say. Anyway. All right, so a couple of quick things, quick notes here at the end. So IBM announced a partnership to offer AI Power Securities with Palo Alto. Palo Alto, if you’re not following, and you can check out Will Townsend and Krista Macomber, Shira Rubinoff on our team. They do the deep cybersecurity stuff. And I always say cyber is, it’s a little beyond my remit, but I look at it on a holistic level and I do believe it is one of the most important trends right now is AI proliferates cybersecurity will be a massive opportunity. That’s why we’ve invested big. That was why we did the Tech Strong deal. That’s why you and I both hired analysts and put a lot of focus on this particular space.
But this, basically partnership, has a combination of using each other’s technologies. And IBM does something that most people don’t really realize unless they have huge businesses on the consulting side to stand up technology from partners, whether that’s SAP or Salesforce or ServiceNow or in this case cybersecurity partnership. So IBM is going to train 1,000 of its security consultants on the migration adoption deployment of Palo Alto Networks. And the vice versa though, Palo Alto is also going to acquire a part of IBM. It’s what’s called their true radar software as a service asset.
And then they’re going to do seamless partnerships. So they’re basically taking a piece of their software out of their portfolio, putting it with Palo Alto, and then they’re going to use their sales muscle to actually sell it together. And this is something IBM is doing a lot of over the last few years. It’s divesting things and then specializing and focusing. And this is something I’ve really appreciated about what Arvind has done to get that company back on track. So what is really going on here? Well, with AI and hybrid cloud being the two megatrends that are in focus for them, IBM and this partnership is allowing them to focus on it, but focus on it through the lens of what their strength is. Being the top partner, this is going to bring a lot of revenue because Palo Alto is going to push a lot of business towards IBM. So this is a really good solid engagement for the hybrid cloud customers that Palo Alto is going to have. They’re going to need implementation. They can focus on the subscription and software from Palo Alto. They focus on the implementation by IBM.
And so the other thing that I think is really important is the embedding of Watsonx and basically building LLM to improve and optimize what Palo Alto network is doing. And then finally, the identity stuff related to Hashi Corp, Hashi Corp, Hashi, Hashi. Anyways, this is also going to just close the loop on some of what’s needed there. There’s a quick one, Pat, but my take is positive. It fits the MO of IBM and how they’re focusing and how they’re strong in security, but they’re focusing on being strong where they’re strong. And of course Palo Alto is a rocket ship in cybersecurity, one of the most prolific right now. And so it just further cements IBM’s progress.
Patrick Moorhead: Yeah, this one is an interesting one. It was not expected, but maybe it should be. I mean, IBM is focused on the hybrid multi-cloud and AI, and to do that, you’ve got to double down on the data security and also the identity part because the identity part can go cross-cloud and data security is data security. So listen, I like the fact that I don’t know if this is necessarily a focus move, but I like this move on the surface. Again, I’ve got Will Townsend to do the double click, but I like it so far.
Daniel Newman: Great. All right, listen, we have one more quick-hitting topic, but important nonetheless. Synopsys has been on fire growing across the board, doing this huge deal with Ansys Aptiv, but they are also doing some divestitures to make way for the growth in their focus areas.
Patrick Moorhead: Yeah, they are. So listen, EDA, I think in 10 years the power players are going to be EDA, ichip IP providers and foundries. Doesn’t mean that chip providers are going away, but they’re going to be a lot of other new options. I think the traditional chip makers will expand their portfolios because these EDA tools are just off the rail. And EDA is not just for chips, it’s also for systems. And you can imagine a company like Tesla who not only does their own chips but does their own cars and everything in between. The ability to use a tool to not only simulate but also build all of these different pieces of the ecosystem, a huge opportunity. So in this spirit and Sassine, the CEO, there-
Daniel Newman: Will also be on the podcast, The Six Five, buddy, by the way.
Patrick Moorhead: Exactly. And it’s funny, I’ve met him over video. I’ve never met him face-to-face like you Daniel, but-
Daniel Newman: Good-looking guy.
Patrick Moorhead: I hope to in the future. Daniel, maybe you can put in a good word for me to the powers over there. But yeah, they sold the unit to Clearlake for $2.1 billion. But I mean these are bold moves and some people thought EDA was sleepy, but Sassine right comes in and you’ve got this huge Ansys acquisition like you mentioned, and you have to divest to focus. And while there was a lot of value in the software integrity unit, I don’t think it was core to the business. That’s it.
Daniel Newman: All right, I have to run. And so we’re going to call it a day. I think you hit that one on the head on synopsys and they’ve made a lot of great progress. Look forward to having Sassine Ghazi as one of our feature speakers at our Six Five Summit, which is less than a month away, Pat. Are you feeling it? Are you feeling it yet? I don’t know. I’m feeling it. We’re going to have 60 plus sessions. We’ve got a huge list of vendors. We’ve got dozens of CEOs and top executives. We’ve got the gambit of AI, AI, AI, and AI this year at the event. We hope you’ll register and be part of our fifth Six Five Summit. It’s going to be great. Everybody else that doesn’t attend, we don’t know what is wrong with you. Apology accepted.
Pat, I got to run today. Great show as always, buddy. Stay skinny. Stay smart. We will be back next week with another episode. By the way, next week, my daughter graduates high school. I know. I know. I know, two now out of high school. I’ve done it. And by the way, you and I, where are we going to be? We’re going to be at Dell Tech World. We’re going to be at IBM Think. We’re going to have teams at Microsoft Build. It’s going to be a massive week for AIPCs. We didn’t even touch on that. Stay tuned. There’s going to be so much coming from us. For Pat, for myself, we’ll see you all later. Bye-bye.
Patrick Moorhead: Peace out.
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.
