Alphabet, Amazon Outpace Meta in AI During Earnings Bonanza

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2:46Scarlet Fu:us live on YouTube. Yesterday, after the close, a lot of the big tech names reporting, and it's kind of the market's kind of trying to suss out some winners and losers. Google, I guess, on the plus side. Yeah, not so much. So let's check in with Mandeep Singh. He does all the technology stuff for Bloomberg Intelligence. Mandeep, meta trading down 10 percent. Let's start there. What's the market reacting to? Well, the market is reacting to the CapEx increase when they don't have much to show, unlike their hyperscreen cloud peers who clearly have seen that top-line benefit. I mean, Meta's top-line growth is very strong, you know, 33 % at the$200 billion run rate is very impressive.

3:30It's just that when you look for that extra line item where AI is categorized separately, They don't have much to show for it. And right now, the growth in AI is around coding agents. So Meta has a model. They've released it. But it's not something that specializes in coding agents. They are targeting more of the personalized, super intelligence, personal assistant, that kind of a use case. And they just haven't given us enough in terms of a timeline when they will start monetizing that use case. So all in all, CapEx increased tied to memory components, not really tied to additional capacity. It was enough to cause this, you know, 10 percent drawdown in the stock.

4:16But overall, fundamentals were still strong when they reported the quarter for their core business.

4:22Scarlet Fu:Yeah, I guess investors don't like to hear when the CEO is saying there isn't a very precise plan for how each AI product will be cultivated. Sounds too generic for their liking. We should mention as well, Meta is now looking to sell up to$25 billion in investment grade bonds to kind of fund out all those spending plans they have. Speaking of spending plans, Alphabet is increasing its spending plans by, I think, about another$10 billion. Yeah. And look, when you compare the magnitude of increases from Microsoft, which raised almost, you know, by$35,$40 billion in CapEx, Meta raised it by over almost$20 billion.

5:01And that was mostly attributed to memory price increases. So the question is, why was Alphabet increase not of the same magnitude? Yes, they raised, but it was a very slight increase. And that kind of goes to show that Alphabet, out of all the hyperscalers, has the best capex efficiency. They are able to use their compute across their apps, whether it's search, YouTube. Also, the cloud business is growing at the fastest rate compared to other hyperscalers. So that CapEx efficiency is what's driving a lot of the margin upside. And it's reflected in their numbers and guidance. So even though it was a beat and race from everyone, Alphabet's beat and race was the most impressive.

5:47And hence the stock reaction. Mandib, where do you think we are in this hyper investment phase for AI? Are we going to do this for another quarter or two, or is this going to be a couple, three years? I mean, this definitely has the makings of a super cycle. Almost everyone on the call yesterday from the management teams talked about how demand far exceeds supply. And look, the compute usage is showing up in the cloud numbers. It's when you think about even Amazon,$150 billion business growing at 28 percent. And Google,$80 billion cloud business growing at 63 percent. So you are seeing that ROI with these AI investments.

6:35And there's no reason to curtail that investment when you're seeing this kind of a top line lift. The only thing is, you know, component pricing, memory notably, is eating up a lot of this CapEx increase. But that's just, again, a function of demand being much higher than what these companies can supply in terms of components.

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7:58So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs.

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9:00Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Some of the big earnings, Meta and Microsoft are big drags on the Nasdaq 100, while you have Alphabet going off basically to the moon right now because it's seen as the winner and it's seen as the most efficient user of CapEx. It's been able to turn around investments and returns on that CapEx. Let's bring in Anrag Rana of Bloomberg Intelligence. He is our tech analyst joining us from Chicago.

9:39Scarlet Fu:Anrag, walk us through the results for Microsoft, first of all. Alexis mentioned how the car business saw good growth, but perhaps not good enough for investors. You know, again, it's a question of relative growth compared to their peers. So for Microsoft, growth accelerated one percentage points from 38 percent to 39 in constant currency. But when you look at Google, it went from 48 percent to 63. So I think it's a relative game. Even in the case of Amazon Web Services, last quarter they grew at 24 percent. this quarter 28. So we are really splitting hairs, but I think that's what's really happening at this point.

10:18There's no scenario where Microsoft's not a huge winner in AI. Is there, Anurag? No, no, absolutely. You're right about it. But again, it's a matter of, one of the things we discussed even yesterday was, if you go back in the history of Microsoft, they were the first company to showcase AI revenue, and they saw a lot of benefit for that one, one and a half years when everybody thought Amazon and Google is behind. Now it's slightly on the other side. They are seeing the benefit of AI, which they didn't see, which means relative growth rates are higher for them. But in the case of Microsoft, they have a very successful AI business.

10:54Their AI run rate is much higher than anybody at this point. They have co-pilot adoption, very fast pace. Azure is doing well. And the funny thing is Azure is now a hundred plus billion dollar business. I think we think it's somewhere around 110 billion, growing at 40%. I mean, I think that's very impressive. But again, it's a question of if Google can beat by such a big margin, well, why couldn't you?

11:17Scarlet Fu:I'm glad you bring up Copilot because isn't there some concern that there's only a small percentage of Microsoft Office users who are paying for Copilot AI tools? I mean, everyone has access to it, but not everyone wants to pay for it. That is the biggest growth opportunity for them, frankly. If you see, they have about 400 plus million users. Out of those 400 million users, we think about 200 of them are power users, people like you and Paul. And then within that cohort, only 20 million of them are paying right now. So the penetration rate is, let's say, about 10%. Over time, that's going to increase, and that's where the R2 increase is going to be and see a much rapid growth rate, both in terms of the number of users going up and then taking up dollars along with it.

12:03Scarlet Fu:So get them hooked first, right, Paul? Yep. this is a milestone day for AI universe. You know why? Why? I downloaded the chat GPT app today. For the first time ever. First time ever. What was your first question to chat GPT? Well, Sarah Lively, one of our producers showed me, she went and said, hey, give me a picture of traders looking for direction, you know, like in the market. And it gave her like a great image. So I did the same thing and it wasn't as good an image, but it was a pretty good image. So Sarah's much better than I am. You've got to work on your palm skills. I'm getting there. Anurag, how about Amazon here?

12:40Their cloud, that business seems to be big. And again, another one of these companies throwing a lot of money at this business. Now, Amazon Web Services, over$150 billion run rate business, grew 28%. We think that rate of growth actually improves in the next few quarters because of the massive backlog. Imagine, just a few days ago, they added open AI models into their entire ecosystem, which they didn't have access to before. That's going to spur even more enterprise AI adoption. One of the things people don't realize is when it comes to Fortune 2000, who are the biggest spenders of money, bulk of their data is in Amazon Web Services.

13:20That's all the cloud transition that's been happening for the last 15, 20 years. So they are actually at the center of this agentic shift for enterprises going from, you know, the legacy way of doing stuff towards agents. Stay with us. More from Bloomberg Intelligence coming up after this. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR our questions, resolving 94 % of common questions.

13:57Not noise, proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs. In Season 3 of The Visibility Gap, Dr. Guy Winch and his guests explore how these pressures show up, how to spot them earlier, and how men can access meaningful support.

14:31Listen to the new season of The Visibility Gap, a podcast presented by Cigna Healthcare.

14:39Scarlet Fu:Everyone has been there. Your team's feedback is scattered across emails, chats, and sticky notes. It's a mess. But PDF Spaces and Adobe Acrobat gives you one collaborative workspace to streamline every file and comment. So, if you need six departments to finally agree on a proposal, do that with Acrobat. Need to turn a mountain of feedback into one plan of action? Do that with Acrobat. Want to stop searching for files and finally get everyone on the same page? Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube let's head over to london sam fazelli director of research for global industries senior pharma analyst i have no idea where he is he could be london could be anywhere in the world that's how this guy rolls uh but he covers all the pharma for bloomberg intelligence sam i assume you and your team have been kind of busy here we've got some earnings coming out of the pharma companies here.

15:48Eli Lilly raising its annual sales and profit forecast to high demand for obesity medications. Boy, that's just like perfect for this market. And the stock's up 9 % today. What did you hear from Lilly? Yeah. So, Paul, I mean, the interesting thing here is that there's been quite a lot of skepticism sticking with everybody was so focused on this oral drug, you know, the pill that they've got launched in the US. So focused on that and tracking the weekly prescriptions that they forgot, actually, there's an enormous juggernaut of a business behind it. And what's driven this $2 billion increase from 80 to 82 on the low side of the guidance for 2026 in sales is ex-US sales.

16:32So that's actually quite good because a lot of people always just keep thinking that everything is all U.S. based and everything is going to be driven by U.S. But of course, here we've got that increase and that's what's driving it. High quality beat, 9%, 9.1 % up this minute.

16:49Scarlet Fu:All right. So good news for those who are investors in Eli Lilly. That's a massive move, 9 % up for the company. It had been suffering, Scarlett, because of the issues of people worrying about that pill. So maybe a little bit of catch up there as well. Merck also reported results and it beat its sales estimates. Demand for newer drugs. Remind me, does Merck have a weight loss drug on the market or is it developing a new weight loss drug? They are developing. They're developing one. Yes. I think everybody is kind of, they've got one that they've licensed. Pretty much everybody's got their finger in that pie.

17:22I can't say absolutely everybody. Most people have got their finger in the pie trying to get something on the market and Roche, AstraZeneca, and time will tell whether they can compete in this. Clearly, these guys are sewing up the market between themselves and Nova Nordisk. So Merck's results were a little bit more, I would say, meh. And as the sphere price suggested, 0.6 % up. There was a beat, but then, of course, much of that was driven by inventory build, which is not something that the market gets too excited by because it's one-off. And then, of course, one of the reasons I think they've been able to guide to a higher EPS is because uh they're gonna have lower charges uh associated with an m a deal they've done and that's not really you know that's that's not a high quality b so business uh steady as she goes merc based in rawway new jersey station stop rawway there you go that's how i know rawway station stop rawway like i never get off uh that's where murk is jesse is big formal land

18:23Scarlet Fu:It is Jersey. You could just have an, that's the entire state practically. So Sam, for these oral obesity drugs, to what degree do you think that's going to expand the market? Yeah, so I think, look at that list expectations. Folks are looking for one and a half billion dollars from a Lily's pill this year. Wow. And it's only been on the market for a couple of weeks, two or three weeks, right? so um and that might be a tough number to get to especially listening to what the management were saying a little bit about the fact that they need to activate a whole bunch of uh patients etc and and there is a question that comes to mind we know that the wigo v pill although it's a bit more of a cumbersome thing you have to take it half an hour before eating breakfast etc and it gives you a better weight loss in terms of the average weight loss say 14 versus 12 let's say Let's say that's about the delta between them.

19:21So what are you going to do? Are you going to worry so much about your breakfast? I mean, nobody gets up and eats straight away, right? So they're going to take their jab, potentially shower, get ready, et cetera. So maybe it's a bit more likely that people will continue on that and that Lily will have a tough time gaining momentum with its oral pill, which is an oral pill, literally an oral pill. you just pop it, nothing to do with fasting or anything. And then, of course, you go to 2030, you get to$20 billion. So, look, they have the better obesity injection today in terms of efficacy. Nova has the better pill in terms of efficacy.

20:05So it's just going to be both of them are going to be fighting for that market share. And Nova's kind of corrected quite a lot.

20:11Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

20:42of the business. Let's create smarter business. IBM. For many men, mental health challenges aren't recognized until they've already taken a toll. Work pressure, financial stress, changing relationships, and traditional expectations around masculinity can quietly wear men down, often without clear warning signs. In season three of The Visibility Gap, Dr. Guy Winch and his guests explore how these pressures show up, how to spot them earlier, and how men can access meaningful support. Listen to the new season of The Visibility Gap, a podcast presented by Cigna Healthcare.

21:16Scarlet Fu:You need to make a huge presentation in an hour. Adobe Acrobat uses AI to take all your documents and generate a presentation with a single click. Build slides quickly and streamline the process. Need a last minute pitch deck? Do that with Acrobat. Need to level up your presentation design? Do that with Acrobat. You have 30 plus documents that need to be simplified into a proposal. Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App.

21:59Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, let's get back to some of these earnings here. Caterpillar, some really strong numbers here. And when we want to talk all that big machinery stuff, we go to Chris Cialino. He's at Bloomberg Intelligence, follows all those big engineering companies, construction companies. Chris, talk to us about Caterpillar here and their quarter. Yeah, you know, Cat continues to deliver against pretty lofty expectations with another top and bottom line beat this quarter. Really solid across the board, highlighted by better than expected performance in their construction business and sustained momentum and power and energy.

22:39But I think really more importantly here, their record backlog continues to grow significantly quarter over quarter. And management raised their long term 2030 growth targets. They also announced that they're going to invest in some additional large engine capacity expansion. So the long term visibility just continues to improve, which we think, you know, should continue to to drive these upward earnings cycle revision.

23:04Scarlet Fu:And this is something that Matt Griffin of Bloomberg News has highlighted. He came on to talk to us about how Caterpillar was another way to play the A.I. boom. How much of this backlog and the growth that Caterpillar is seeing is directly tied to A.I. build out? So it's a large portion, right? Right. It's, you know, now power and energy is approaching, you know, roughly half the size of the business. But I think one of the takeaways I took from this quarter was that the backlog was really up across all businesses. And it's kind of at a unique time for Caterpillar in that not only do we have all these secular tailwinds on the power generation side, but now we're starting to see the cyclical tailwinds start to kick in in terms of construction and mining.