Will Meta and Microsoft's AI Investments Pay Off? | Pivot

We've got more tech earnings to discuss. So much going on. Let's start with Meta, whose shares jumped in extended trading Wednesday after the company beat estimates for revenue and profit in the second quarter. Advertising revenue was 22% from a year earlier, and the strength of that business seems to be offsetting concern about heavy spending on AI, which I think is necessary for them. The AI spending will be increasing with Meta upping its expected 2024 capital expenditures to at least 37 billion. We're done with the Metaverse, now we're spending the money on AI. Um, Meta shares did sink on the AI spending news last quarter. Um, the market seems more optimistic because they've got a really good business to get them there, I guess. Um, there's not, still not a lot to show for these AI investments and a lot of investors are worried about where the payoffs are. Um, how long will investors wait to get a return from Meta? Um, and I'll just go through Microsoft earnings really quickly. Microsoft was less, they were less enthusiastic about those, which were a mid of a, bit of a mixed bag. Overall sales and profit growth beat expectations in the latest quarter, but revenue for the company's Cloud business rose 27%, slightly below the prior quarter and analyst expectation. Shares were down about 3% on Tuesday after the earnings report, but rebounded for the most part the next day. Um, so talk a little bit about the, about the two companies. Thoughts?

Yeah, there's just no denying it. Meta, (sighs) I mean, uh, Meta, their earnings were up, their earnings per share were up 73% year on year. Their ad impressions and average price per ad both increased 10% year on year. I mean, that's incredible. The average price and the number of impressions up 10%. Three and a quarter billion daily active users. So 40% of the planet is on a Meta platform every day? Uh, the only thing that's giving anyone any pause, and it depends how well they're positioned, is they said, they warned that CapEx growth for AI will grow significantly, and they've said that the amount of compute needed to train LLaMA 4 will likely be almost ten times more than we used to, uh, what was used to train, uh, LLaMA 3. And people are sort of, when they get a little insecure about this, they immediately go to, similar to what they did in '99 when they went to Cisco, they go to the infrastructure place. Because if you look at the CapEx for the software layer, Microsoft, Meta, Google, and Amazon, their CapEx is up 31%, but their revenue's only up 19, whereas the hardware layer, you know, where you go first, NVIDIA, AMD, Arm, their CapEx is actually flat to even maybe down 8% depending on how you calculate it, but their revenue's up 146%. So it feels like a safer, a safer play right now, because since reporting their earnings, Microsoft and Google, the software stack or part of the stack, have declined two and 6% respectively. When AMD reported, it was up 8%, but the, the software layer, although it, is that true? Meta was up but Microsoft was down. But the thing that freaked everybody out on the Microsoft call was, uh, just their, I think it was like they announced something like a 78% year on year increase in CapEx to 19 billion, which is a staggering increase. And get this, the entire tech industry is in such a spending spree, the capital expenditures of Amazon, Meta, Microsoft, and Google this year will be about $200 billion. That's double what the US government spends on homeland security. I mean, this is, these numbers are just staggering.