Who in Big Tech Is Ready for Agentic AI?

0:05Travis Hoium:It's Wednesday, so there must be big AI news in the market. You're listening to Motley Fool Money.

0:20Travis Hoium:Welcome to Motley Fool Money with the Hidden Gems team. I'm Travis Hoium, joined today by Lou Whiteman and Rachel Warren. and every tech company that we know is building an AI story. That's been something that's been happening for quite a while now. But this week, Amazon actually won a court ruling against per perplexity saying that they can't scrape their website. So the interesting thing here is that you can make an argument that Google and Meta just want to connect companies, consumers with retailers who are trying to sell them products, but Amazon is a little bit different. So I thought it was worthwhile to dig into how they're such a different player in the ASB AI space today.

0:56Travis Hoium:And, you know, Rachel, they're, they want people to go to amazon.com. Right. And they have been the one company that's really been resistant to all these AI companies. You know, the way that they would look at it is scraping their data and kind of getting that into their system for free. The big thing is they generate a ton of money. I think it's over$40 billion now from advertising revenue. guess what? AI chatbots don't look at ads. So is this a threat to Amazon? Is this just Amazon trying to play its cards as well as it can? What's going on with Amazon kind of shoving perplexity to the side?

1:34Yeah.

1:35Rachel Warren:I mean, I think if you look at this court victory, it's obviously a win for the business in the short term, but I do think it highlights a deeper risk for the business. And I say this as an Amazon long-term shareholder, but I think you should think about it this way, right? You know, Amazon's entire flywheel is built on a very specific competitive advantage. They own the entire commerce journey from that very first search that a shopper might make all the way to the package being delivered to your door. And they don't just want a sale. As you noted, they want the advertising revenue from the sponsor products that you scroll past, right, as a shopper and the data from every click.

2:08Rachel Warren:And so by blocking perplexity from scraping their site, Amazon is essentially trying to protect that storefront experience that makes their ecosystem them so profitable. I think the threat here is that AI agents, which we are seeing become smarter and faster and launched left and right, these are Isla's shoppers, so to speak, right? They're not going to be distracted by the deals that a human shopper would be. They're not going to go and browse through pages and pages of sponsored results, which are actions, by the way, that fuel Amazon's advertising machine. So if we live in a world where third-party AI becomes the primary shopping interface, there is this concern that that really extensive advertising mode for Amazon could start to dry up.

2:49Rachel Warren:I think that's the extreme bear case. I don't think we're there, but I do think it's clear that Amazon is really fighting to ensure that in a world that could be transitioning to more AI-driven shopping, that shoppers are using their own AI assistance, right? Like Rufus, rather than a neutral third party that might suggest a competitor. I think this Courtland buys them some time as they are trying to find out where they fit into a potential AI-powered shopping future. But I do think that the battle for who owns the customer's intent and where those AI agents fit in, I think that's just getting started.

3:24Travis Hoium:Lou, is that right? Is this a threat we need to watch with Amazon's retail business?

3:30Lou Whiteman:Well, I think, you know, stepping out broader, I think instant and complete comparison shopping could be the killer app for consumers.

3:38Travis Hoium:And what you mean by that is instead of going to 15 different websites and a whole bunch of different retailers.

3:42Lou Whiteman:Or even Google Shopping tried this with search and it wasn't as good. But if you could just tell your little imaginary friend, I want to buy this, go find me the best price. And that's a real killer app. I can see why retailers would see this as a threat. And I think what Rachel said is right. At best, Amazon wants to be proactive and retain as much control for as long as they can. You know, it's funny. Looking from the AI perspective, there's sort of a weird chicken or the egg thing. You know, the AI models want consumers to pay for them. They need killer apps. But until the AI models are big enough to force the issue, why would retailers like Amazon sort of like give in to perplexity here?

4:28Lou Whiteman:and without the killer app, how do you get the volumes that you need to then get the killer app? So, I mean, I do think, you know, I don't know. It's funny to think, like, who ends up paying here long-term? Say the future happens. Is Amazon getting money from perplexity for access to its site? Is Amazon paying the bots as sort of a, you know, advertising fee or somewhere in between?

4:57Travis Hoium:I think for now, the question that I would have is, does a different ecosystem with different incentives pop up? You think of a platform like Shopify, where Shopify does have an incentive. If you're a small merchant, you're not getting into a Walmart store, for example. You may not want to go through the costs that are involved in Amazon. That's become a very costly platform to be on. Part of that is their advertising revenue. But what if a chatbot can just find you in your little store that you built on Shopify because the incentive now is to find that perfect product at the perfect price? Lou, is that sort of the risk here is that these other companies are playing offense, like a Shopify, for example, whereas Amazon kind of looks like they're playing defense?

5:44Lou Whiteman:Yeah, or put it simply, because who knows, that's a scenario, but the status quo benefits Amazon. Yeah. And so it makes sense for Amazon to preserve the status quo as long as it can. To your point, we don't know what the future looks like, but as these things work, when a shift happens, the incumbent usually isn't the beneficiary, even if they end up being okay with it. So it's in the incumbent's best interest almost always to preserve the status quo.

6:13Travis Hoium:We're going to stay on this AI topic for a moment. And when we come back, Lou is going to explain what a moltbook is. You're listening to Motley Fool Money.

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7:18Travis Hoium:Welcome back to Motley Fool Money with the Hidden Gems team. The meandering of meta platforms continued this week. They acquired at least the staff of Moldbook. Lou, what is a Moldbook and why does it make sense under meta?

7:34Lou Whiteman:Come on, Travis. Everybody knows what Moldbook is. I mean, who doesn't know Moldbook, right? I mean, who hasn't heard of it? And just in case, for those one or two out there who aren't like, you know, moltbookers every day, moltbook is a quote-unquote social network for AI agents. It's where AI agents can become friends with each other. I mean, it seems like it's a natural extension, right? One headline I saw described moltbook as going viral based on the amount of fake news on it, which let's just skip the meta joke there because that's too easy. I don't know. Could there be dating apps coming off of this?

8:06Lou Whiteman:Could we have like, you know, match.com for AI agents? But look, kidding aside here, there is a something here, right? MoteBook, under the surface, really what it is, is just, you know, allowing people and bots to communicate with AI agents in natural language through chat apps. And you can see where there is a commercial use for that other than an AI agent dating site. Also, look, I don't know what the future is for Meta. We can get into what they're doing with AI, but, you know, acquihires happen and they're good. Right now, Meta has all the cash in the world. They are using that cash to assemble the brightest minds they can.

8:48Lou Whiteman:The throw spaghetti at a wall and see what sticks isn't a bad strategy at this point in time when everything is developing. I don't know if Maltbook is the next big thing. I don't know if it's that third leg along with Instagram and Facebook, their third big social network. But I do think that, you know, you can put the cynical hat aside and say, yeah, there's probably a reason for this.

9:09Travis Hoium:Rachel, Lou's overlooking WhatsApp because he's obviously a US investor.

9:14Lou Whiteman:Well, no, that's a messaging app, not a social platform.

9:17Travis Hoium:Well, yeah. I mean, it's the app of choice for a lot of us. But Rachel, so what do you think about Moldbook here? Is there some sort of value? Is this just another talent grab? There's got to be some reason that they keep making these moves.

9:31Rachel Warren:Yeah, I do think there's some value here. I actually think it's more of an admission that the AI strategy is pivoting towards autonomous agents. I think Meta sees that and is trying to ensure that they're capitalizing on those growth tailwinds.

9:44Travis Hoium:So you're saying they've lost the chatbot battles.

9:46Rachel Warren:I think that they are struggling to develop what they need in-house and have clearly found that the strategy of acquiring and bringing in really quality outside talent is going to be the best move for them. I think that that that's what we're seeing. Moltbook, I mean, Lou explained that very well, but it's essentially, you know, the social network where only AI bots post and talk to each other while humans watch from the sidelines, which is sort of an interesting idea. It's kind of been compared to a Reddit-like internet forum. It was only launched, I believe, a few months ago. In January. Yeah, and it essentially acts as this like sandbox for AI to communicate, trade knowledge, debate existence, to form autonomous AI social structures.

10:27Rachel Warren:So what are the long-term applications for that? I think that remains to be seen. But this is all going to be folded into the broader meta superintelligence labs, right? That's run by former Scale AI CEO Alexander Wang. I think Zuckerberg is really signaling that Meta's next act, it isn't just smarter chatbots. It's really a whole infrastructure for AI agents to interact and transact. And I think maybe they see value for that, particularly with the ad machine that they have powering their key platforms. So that's kind of my takeaway.

10:56Travis Hoium:Lou, as we think about meta, because it seems to me that they're a natural company to benefit from artificial intelligence. We've seen some, you know, efficiency improvements with their advertising and things like that, but they're hiring talent that would indicate that they want to be a consumer AI company. Is this just going to be like an agent AI company or are they, Is this just that spaghetti at the wall phase for Meta that you talked about?

11:22Lou Whiteman:Yeah, I'd push back a bit on the idea that, you know, them buying stuff implies that the strategy isn't working out. I mean, Alphabet has spent, what,$40 billion on AI-related acquisitions. Everybody is in an arms race right now. It's just where we are in the cycle. You know, the thing about Meta, though, that gets you is, is that, you know, I don't know if they have the natural audience for what they're building other than in-house, but they're not, they're not spending the money they're spending to make ads a little better. Uh, their whole, you know, you know, how do they get customers that are going to pay for what they're building?

11:59Lou Whiteman:I think there's a natural extension for Microsoft. There's a natural extension for, for Alphabet to kind of get their tools in the hands of consumers. I'll be honest as a meta user, I'm not on the agent social network right now, but I am on other products. Their desperate attempts to get me to use their AI are pretty pathetic right now. I mean, it's some story about a basketball game and it's, tell me how the coach thought of plays in the second half. And if you click on it, it'll just say, I don't know. You know, I mean, that is right now. Well, I think that I think the acquihires, the acquisitions right now, this is noise.

12:41Lou Whiteman:That doesn't say much about whether or not they're succeeding or not. I do think, though, the open question, it's the question with OpenAI, too, perplexity, back to our earlier story of just how you're going to get what you develop into the hands of consumers and win what looks like in a race to the bottom in commoditization. That is the bigger problem, not the acquisitions.

13:06Travis Hoium:Well, all of this AI development is leading to a lot of demand for Oracle. So we're going to talk about their recent results next. You're listening to Motley Fool Money.

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13:36Travis Hoium:Welcome back to Motley Fool Money with the Hidden Gems team. Oracle announced results for their most recent fiscal quarter after the market closed yesterday. Rachel, what did we learn about this AI giant in the making? Question mark?

13:52Rachel Warren:Yeah, I mean, so this was their Q3 earnings. A few interesting takeaways here. I mean, Oracle is seeing its highest growth in 15 years, which is impressive, but it is coming at a staggering cost. So the kind of headline-grabbing number was their$553 billion backlog in contracted future revenue. That's a number that was up about 325 % year over year. And basically, customers are beating down Oracle's door for AI infrastructure. Oracle's growing its cloud business at an 84 % clip to meet that. To build the data centers required to actually fulfill those orders, though, Oracle spending has gone nuclear.

14:26Rachel Warren:They had negative free cash flow of about$25 billion just in this quarter. And they are essentially an AI construction company right now, racing to plug in chips faster than the competition. Oracle is debt funding its empire at this point. And the defense we're seeing from management is that they're not just blindly borrowing, they're using this bring your own hardware model, if you will, where customers often pay up front or even provide the chips themselves. And that is designed to de-risk the build out. And I think Oracle is betting that they can convert that significant backlog into high margin profits before the interest on that debt catches up to them.

15:01Rachel Warren:I think that's possible. I think this was a really good quarter for the business, but I think it's really important to also look at where it's costing the company right now. And we're seeing that in terms of the cost for its free cash flow, as well as that debt that is growing by the quarter.

15:16Travis Hoium:Yeah, Lou,$135 billion is a lot of debt, no matter how you slice it. But I also thought it was really interesting, the bring your own chips business model that they've introduced in their hyperscaler business. I guess that's where we are, is they have enough power to say, hey, cool, we'll build up this data center and give you capacity. But you've got to bring your own GPUs.

15:38Lou Whiteman:It certainly makes life easier for them. I mean, yeah,$135 billion is a big number, but every number here is a big number. So I don't think it's a level of concern. Put it a different way, it's about two times sales, five times EBITDA. that's not unreasonable. That's not nothing. It needs to be watched. But I don't think, as fun as it is to just do the headline number, I don't think that that is the point. Look, RPOs are interesting. And the interesting thing about the RPO number is a lot of this is, I keep using a word, but a land grab. I don't know if any of their customers really know if they need all the capacity they've gotten, but if you don't secure it now, you're not going to get a chance later.