Tech Earnings Show Heavy AI Spending Continuing

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1:11Bloomberg Tech is live from coast to coast with Caroline Hyde in New York and Ed Ludlow in San Francisco. This is Bloomberg Tech. Coming up, Alphabet, Microsoft and Meta all out with results showing heavy spending on AI and data center construction. Plus, Roblox CEO Dave Buzuki joins us to discuss the company's earnings as users are jumping, but so are costs. And we'll break down what was said during the meeting between President Trump and China's Xi Jinping. What wasn't discussed? NVIDIA's Blackwell chips. Let's turn our attention to these markets, though. And after record high after record high, we take a breather.

1:52The Nasdaq 100 under pressure, off by almost a percentage point. This is we think about the Fed maybe not baking in that December cut as much as the market had anticipated. You add to that some concerns about AI spending. You add to that a China-US trade detente for a year that many felt were priced in, Ed. And we just come down some across all asset classes. But you're looking under what's in the equity moves. Yep. Let's get through the top stories. NVIDIA is down 2%. Blackwell, its latest processor, was not discussed in the meeting between President Trump and Xi Jinping. Later in the show, out to South Korea to get the details of that meeting.

2:25Then there's earnings. Microsoft, 39 % top line growth in Azure, the cloud computing unit, the only unit that mattered, but the stock selling off high bar for investors. Alphabet is the one that's higher. It told us what its capital expenditures are this year, but it also told us about growth, a real number on AI or generative AI related products. Then Meta, it is the biggest decliner and the biggest drag. Capital expenditure concern. Then this morning, coming to market with an up to six-part bond sale. Maturities ranging five to 40 years, the 40-year note, 1.4 % over treasuries, above treasuries.

3:01There's a lot to discuss in Meta's capital requirements and then what it has to show for it. Let's do that with Brent Phil, Jeffrey's analyst, joins us right now. Let's start with Meta. That's kind of the equation, right? Okay, capital expenditures will be higher next year than they were this year. then what give us more give us some longer term outlook there just wasn't a formal guidance is that what spooked the market yeah meta was just in a period of being really comfortable zuck had had been very comfortable the company had executed they had invested and they were harvesting those investments and now they're going back into invest mode uh so i think at the beginning of the year, advertisers were saying that Meta was more sheltered because they didn't know what Google was going to do with AI.

3:48And we didn't know what was going to happen to TikTok. And then halfway through the year, everyone realized, hey, Google's got their act together in AI. And we know that TikTok now has more of a foundation. So I think, as I call it, there's less of a tailwind for Meta. It's not a headwind, but it's less of a tailwind that they had at the beginning of the year when you talk to advertisers. And I think what Zuck said last night on the call was the investments in AI are paying off and they just need more of them because everything they built, they felt like they had overbuilt and they sold out of what they built.

4:25So they have to build more. And so, yeah, it doesn't have anything to do with the fundamental position. It's, are we going to see margin compression? And then when does that return come back? But we already know that they have a return. We saw with Microsoft, they've given us margin expansion, even in the face of AI. So this whole concept that AI doesn't pay off is silly. But the stock move is so big that we question. Yes, we see Duck on the call saying, look, I'm worried about underinvesting. We hear once again from Susan Lee that they're going to make notable investments. Everyone knew CapEx is going to go up and to the right.

5:04Why is there There's such an air pocket on this day, do you think? Well, I think the outperformance of Google, I think you have money chasing. We're in a momentum market. I mean, look at yesterday before any earnings. Everything in applications went down. Anything in AI went straight up in infrastructure. So if you have CapEx going this high, the pushback is why do I invest in internet and software right now? I should be invested in energy and land and all the enabling infrastructure. The infrastructure goes up every day. Look at all the energy names. They're all ripping. And so I think there's a common pattern with tech investors right now.

5:40They're just broader investors are moving their investments to other categories and then they're chasing momentum. It's just the market's so narrow and you're seeing this. So there was nothing that was fundamentally offline. They're making the investment. They've done this before. How many times have we seen Matt do this? And then the return, the stock goes higher. They're going to do thirty dollars running power. Put a 30 multiple on it, and you're$900 on the stock. It's a buy on the pullback. Brent, the name with momentum is Alphabet and Google, right? They gave us two data points. Capital expenditures, $91 billion to$93 billion.

6:20But revenue from products that are built on Google's generative AI models grew more than 200 % from a year earlier. That second part, your reaction to it? I mean, AI is working. And I think the fear that investors have had is what happens when I go from a world of search to AI? And I think Google is showing they can do the high wire act very well between search to AI. Everyone thought search would implode in the last two quarters, they beat the search number. This quarter, they accelerated their search number. So what they're saying is that search can be anywhere. It can be inside AI. It can be in their own search engine.

7:00It could be at YouTube. It could be across different properties. And I think what Google is demonstrating, and we've said this kind of for a while, they have better AI underneath the hood than they're articulating. And it's now coming out. You can see it. We said, you know, they kind of pull up to the AI race, you know, on a Toyota Camry body, but they have the biggest engine and they pop the hood and everyone's like, whoa, this is incredible. And so I think everyone is realizing when you look at Gemini, I mean, we ran bench tests. It's almost equivalent to ChatGPT. And then you look at the breadth of their offering.

7:40And again, remember, they own the world's Internet data. So you need data, users, and capital for AI to work. And they have all of those, almost better than Meta, Microsoft, many of the others. They have more data on anything in the world than anyone. So I think they're proving that this engine's working. The body didn't look great. You know, they're upgrading the body, but the engine is really, really good. But what's so interesting is clearly Microsoft is still working. When you're looking at Azure growth of 39%, that was better than the market had anticipated. Sure, it might not be much of a growth uplift.

8:15But what was the fly in the ointment for Microsoft, where Amy Hood again is saying, my issue is supply, not demand? I don't understand the market because they just put up over 50 % RPO or backlog growth and 110, 111 % commercial bookings. Those numbers are insane. And that didn't even include OpenAI's 250 billion incremental dollars. So I think the market's got this wrong, honestly, that you got to look at the backlog. The backlog is leaning indicator of health. The reported Azure number does not matter. When you're putting those backlog numbers up, that tells you they're capacity constrained.

8:54You can't book that kind of revenue and not take it to Azure. And the differential is they just can't get the capacity up right now. But their customers want to spend, and their customers are spending, and they know what Microsoft has. So I think this is a common pattern where you're seeing massive backlog growth, commitments to AI from their customers, but Microsoft can't literally physically provision it fast enough. And when we talk to Microsoft offline, like the Azure number would be way higher if we didn't have the capacity constraint. So this is not a demand issue. This isn't a competitive issue.

9:39This is an issue that the industry is facing right now across the board is they can't get enough of it to their customers. That number would have been way higher because you can't describe the math of the backlog being so high and Azure where it's at. So I think, again, we look at it. It's important. Wall Street cares. Wall Street should care more about backlog and bookings. This is, again, what all Oracle trades on. They don't care about revenue. Why does everyone just care about revenue now? So I think, again, I think the street's got it wrong. Street's got it wrong. Brent Hill. Jeffrey's putting it right.

10:14We thank you so much. Coming up, more about earnings. Roblox CEO David Zucchi joining us to discuss the company's numbers. daily active users for the gaming platform, topping 151 million, Ed. Let's look at CoreWeave. Shares down more than 6%. Core Scientific investors have voted no on CoreWeave acquiring the company. You'll remember that CoreWeave tried to buy Core Scientific in July for$9 billion, and the advisory firm said that undervalued it. BI reacting saying it actually won't impact operations of CoreWeave, but another headline on the terminal, as soon as that vote was decided, call weave to buy Marimo.

10:51Terms not disclosed. Maybe a sense that it's moving on very quickly. We'll have more when we can. This is Bloomberg Tech. Grow a garden. 99 nights in the forest. Still a brain rot. Three games propelling Roblox to its highest level of daily active users. The company also posting nearly$2 billion in bookings in the third quarter. Still, shares of the company trading lower after the earnings. Let's talk through all of this with Dave Buzuki, founder and CEO of Roblox. And Dave, this growth, this real playing commitment comes at a cost, an infrastructure cost. And we see costs go up because of safety that you're enacting, but also the cloud compute.

11:28How do you start to monetize to make up for some of those costs? Yeah, thanks for noting the amazing quarter we just had. Both bookings growth was up 70 % year on year at$1.9 billion. And as you noted, our daily active users passed 150 million, which is up 70 % year on year. In addition to those three games you mentioned, we had seven games on Roblox in the last quarter past 10 million daily active users. And a really healthy content ecosystem, five of those seven experiences were created in the last year. We've hit some really peak numbers. We had 45 million concurrent players all at the same time.

12:12What we said on the earnings call is with all of this growth, which is cumulatively averaging 37 percent over the last two years, we are going to be spending on infra. What we said is the continued decreases in cost for infra. We may slow that down a bit as we spend. But the final thing I want to generate is the cash flow that we generated on the platform. We generated over 440 million of free cash flow in Q4. Dave, looking forward then, how are you managing out some of the technology plays that you made, age verification technology, in a way that doesn't impact or slow the growth of both active users and the bookings?

12:57We've made a commitment a while back to what we believe will be the gold standard for safety on platforms like Roblox and throughout the industry, with new advances in AI, we're going to use facial age estimation to estimate the age of everyone on our platform. And in addition to the text filtering we do, the critical harms monitoring, the prevention of any image sharing, we're going to use that to help gate who communicates and who they communicate with. I was just in an executive staff meeting on Tuesday playing with the rollout of this product. It's really elegant. And we, of course, want to highlight there may be some friction, but I'm really optimistic.

13:41This is the long-term good play for Roblox, which is really establishing the standard of how we believe safety and civility is going to run in the future. And that, your CFO made the point, that's going to have long-term value for shareholders. You make it again, Dave. Talk to us, therefore, about the new technology, not just in safety, but also in how you build games and high-fidelity feeling of a game. But some of these big winners that we've had, and we listed them at the top, they are kind of more old school feeling in many ways. But they're the ones breaking records. Grow a garden, more classic and blocky.

14:13How do you compromise on that? We've highlighted our vision of getting to 10 % of all the global gaming content market running on Roblox. In this quarter, we passed 3%. So there's a lot of room to go. We have an enormous amount of new technology coming to support more diverse experiences, to support different types of avatars, to support competitive gaming in genres like racing or sports, to support role-playing games and other types. And we really do have a vision for genre expansion, but in a really future-looking way. And that when creators make experiences on Roblox, they run well either on low-end Android devices, like a 2-gigabyte Android phone, or on high-end gaming PCs, and they run around the world.

15:01So we're optimistic with the new technology, our economics, and discovery. We're going to see a diversification of the types of experiences we see on our platform. Dave, you want 10 % of the gaming content market that changed in the quarter. I saw layoffs at Amazon and Microsoft's gaming divisions. Electronic Arts elected to go private. The big publicly traded peer that you have private with the Saudis. React with your interpretation of what that signals for the market you're trying to grow in. Well, people estimate the global gaming market somewhere between 180 and 200 billion. What we've seen on Roblox is really a future forward optimistic look at gaming.

15:46We've seen new types of genres given the Roblox platform, the ability to play with friends on different devices. You know, Dress to Impress last year was a whole new type of experience. People competing in a fashion show. So Grow a Garden, I'm really proud of because hitting those top numbers, making new records for over 20 million concurrence, is literally a game you can play either while you're there or when you're not there. Your garden keeps growing when you're not playing. So I think the way to think about this is not just protecting amongst the history of gaming, but looking at whole new types of games that are going to be built on platforms like Roblox and accelerated with AI as every game starts to have access to AI as well.

16:36Dave Buzuki, Roblox CEO. Thank you very much. Let's stick with earnings in tech. Comcast was also out before the bell this morning, with the company managing to slow the tide of broadband and cable TV customer defections in the third quarter with help from an internet price lock guarantee and some bundle plans. Let's get out to Bloomberg's entertainment reporter, Kelsey Griffiths in DC. Give us the need to know on Comcast. This is Comcast's 10th straight quarter of broadband losses. So the company came into this quarter knowing that they had to do something to start stemming this tide like you just said.

17:11They did in fact succeed in kind of slowing some of those losses. Even though those numbers weren't positive necessarily, they were losing customers at a slower rate than usual. And so the executives were saying that some of the changes they've made over this year earlier seem to be working. Seem to be working, but the share price is still lower. And what's interesting, maybe in some of the analyst notes, there is a concern that maybe they'll spend more, particularly when they're thinking making a bid for parts of Warner Brothers. What do you make of that, Kelsey? That's right. Warner Brothers is one piece of the strategy that Comcast said they're looking at, although they didn't express a really high level of interest.

17:53They said when something like this in our industry comes on the market, it is something that we have to take a look at. But look, we're good with our content strategy, even without M &A. They just succeeded in lowering Taylor Sheridan over from Paramount Plus, and he is going to be a really big part of that content landscape going forward for them. They also have NBA TV rights, and those are things that they're really excited about in the nearer term. Great roundup, Kelsey Griffiths. We appreciate you on Comcast. And let's just stick with the Warner Brothers story a little bit more, because CEO David Saslav said that the board would need a higher bid to justify a sale of the company.

18:31He said those comments during a town hall meeting for employees yesterday, according to sources. Now, Sazlov also told the staff that the board had rejected three offers from Paramount Skydance Ed. OK, coming up, President Trump and China's Xi Jinping attempt to ease trade tensions inside their high stakes talks on the future of the global supply chain. We have all the details next. This is Bloomberg Tech.

19:13We did discuss chips and he's going to be, they're going to be talking to Davidia and others about taking chips. We're not talking about the black one that just came out yesterday.

19:27but a lot of chips you know a lot of the chips and that's good for us that was president trump speaking to reporters on board air force one after meeting with chinese president xi jinping saying chips were in discussion but nvidia's latest blackwell was left off the table blueberg's tyler kendall has been traveling with the president and joins us from south korea what is the absolute latest what do we need to know about that came out of those talks between Trump and Xi Jinping. Yeah, hey, Ed, well, when it comes to NVIDIA chips, it certainly dampens any speculation that Washington would go on to approve the sale of such chips to China.

20:04President Trump went on in that gaggle on Air Force One to be asked specifically whether or not anything was brought up about the potential for a downgraded version of the Blackwell processor. He said that it was not, but that ultimately NVIDIA, the company itself is going to continue direct talks with Washington. As you well know, NVIDIA has been trying to regain market access in China since 2022 after going from a 95 percent market share peak down to zero. But I have to say this was welcome news in Washington this morning for those defense hawks who have previously advocated against such sales over national security concerns, which brings us to the broader issue of the general trade talks, because while we are getting this easing in tensions.

20:45Our own analysts at Bloomberg Economics say those more fundamental issues, including national security, were not ultimately addressed. But Ed and Caroline, of course, welcome news that we are seeing what appears to be at least a year extension when it comes to the broader trade truce. Bloomberg's Tyler Kendall, thank you so much. That's the latest from South Korea. Let's get more news. Caro. Yeah, it's time now, Ed, for Talking Tech. And first up, OpenAI is said to be preparing to file for an IPO as soon as next year that could value the company at$1 trillion. But it's all according to a report from Reuters.

21:17The company is said to be considering finding the paperwork with regulators soon in the second half of 2026. Plus, Microsoft says its cloud services are recovering from an outage that disrupted workplace software products and impacted several companies. But the outage prevented people from checking into Alaska airline flights, for example, and disrupted features in Microsoft's own co-pilot AI. Meanwhile, ex-consultants from McKinsey, from Bain, from BCG, are recently contracted to train AI models on entry-level consulting work for OpenAI. Now, Bloomberg has learned that Argentum project is run by the same third-party firm using ex-bankers to train OpenAI on financial models, Ed.

21:58OK, coming up, we have more Magnificent Seven Earnings coming up after the bell today with Apple and Amazon. And we're going to have what to expect from those giants next. Apple up treading water 3.10%, Amazon down 9.10%, 1%. Maybe there's more read-through there from the other cloud names and what that might or might not spell for Amazon or at least investors' attitude towards it. Elsewhere, we know what the story is and the top stories of the day. Stocks moving in different directions on the earnings context. Meta's down 12%. Really interesting. Notably higher CapEx in 2026 and 2025. Alphabet gave us the same number, a CapEx, but they also told us how revenues directly tied to AI are growing.

22:39And right now the market's rewarding that with the Google pairing up 5%. This is Bloomberg Tech.

22:55Welcome back to Bloomberg Tech. Let's recap the three magnificent names that already reported last night. Different stories. Microsoft down 3%. Azure growth was 39%. above consensus, but it was a high bar quarter. Same story across all three of them as we know the capital expenditures environment. Meta told us that capital expenditures would be notably larger next year than they were this year. But the investor base is spooked a little bit because we don't have this kind of longer term outlook for how that translates to sales. Apart from we do from Alphabet, the parent of Google. So they told us what the capital expenditures picture looks like, but also that their products that result from investment in data center capacity, AI models, generative AI, grew 200 % year on year.

23:38And that name is up 5 % in direct reaction. And there are so many more earnings out there, Cara. There are. And another one on the rise is ServiceNow, Ed. It gave an outlook for strong revenue growth, said AI, of course, is helping the company reduce its own costs. We spoke with ServiceNow CEO Bill McDermott a little while ago. The most important thing is to reinvent all of these back office operations and companies. So, for example, in our company, whether it's IT support or customer support or security and risk, 90 % of this work now is being done by agents, but not at the expense of people.

24:17The people in our company now have an AI teammate on their shoulder to do the things that they'd really never really liked very much. Earnings season continues with both Amazon and Apple reporting later today. Let's talk about what to expect. Bloomberg's equities reporter Ryan Vestelica. Let's start with Amazon then. It's down a percentage point. Maybe there's some read through from like what we learned about cloud computing from the three that went last night. What are we expecting? Yeah, absolutely. I'd say there's absolutely people looking at the results we saw last night from Microsoft and Alphabet and kind of extrapolating into what we could expect from Amazon.