AI Profits Surge, $70B Capex Surge Raises Investor Concerns, Automated Skin Exams | Diet TBPN

0:01John Coogan:We had to rush back from Stripe Sessions. Fantastic interview with the Collison Brothers, many others yesterday. Go check it out if you haven't already. Fun stuff. We didn't go nearly deep enough on the whole Coasean singularity. There's a debate on the timeline about it. We can get into it later. We need to have some more economists on the show to break it down for us. But this is their big pitch. Firms get smaller and the future, the Coase theory of the firm, anyway. If you studied economics, you might be familiar. but it's jargon and you're going to be hearing a lot more of it. A whole lot of mumbo jumbo.

0:34John Coogan:I'm not even going to try. I'm not even going to try. Well, here's some less mumbo jumbo. Tech earnings, quad kill, recap, four in one day. Last time this happened, I think it was 2020, four big tech companies all same day. It is random. No one really knows why. It just sort of lines up. It's like a solar eclipse. Can you use astrology to predict the next one? Potentially. Potentially. You would have to imagine it's something around the alignment of the planets that causes hyperscalers. More like the holidays because books close, then certain things line up. Also, like, NVIDIA is never in the competition because they're always, like, two or three weeks later.

1:12John Coogan:But anyway, let's go through what actually happened. Google was the big winner. They absolutely crushed the stocks up 10 % in the last couple days. Really successful. And there's a few reasons. So the core business is still growing. Google search. This was the question of is AI, our chatbots, going to be eating into the core Google search revenue, the core business that drives all the other investments. The answer is unequivocally no. Google search and other revenue was$60.4 billion. Yeah. Up 19 % year over year. I mean, two years ago, there was the whole, like, Google search is dead thesis. That has not been borne out, at least this year.

1:51John Coogan:Very, very strong results there. Then Google Cloud is, like, the major story. So much so that Tay Kim, when he did his earnings recap, he didn't even talk about top lines at Google, Amazon, and Microsoft. He just says, Google cloud revenue, 63 % year over year, Amazon web services, 28 % year over year, Azure, 40 % year over year, and then meta overall revenue, which we'll get into, 33 % year over year. So he's not even looking at the rest of the business. All that matters for the three major public clouds are those cloud businesses, not even anything specific within the overall business. So long story short, higher CapEx at Google totally justified in a world of cloud acceleration.

2:35John Coogan:Backlog growth is huge. Cloud backlog nearly doubled to more than$460 billion. And importantly, this isn't like a five-year, 10-year contract type thing. Half of that, more than half of that backlog is expected to be recognized in the next 24 months. So really good news there. Google Cloud hit 20 billion, up 63%. Now it is smaller than Amazon, and that's why AWS is, people are hunting for high 20 growth rates, maybe it begins with three. In Google, it's smaller, so it can grow 63%, but that's still fantastic. And cloud operating income was 6.6 billion, which is a very strong margin. So everything is looking good.

3:14John Coogan:Search durability, demand for AI infrastructure. It's the full stack AI play right now. Microsoft showed solid execution, but they didn't dramatically change any particular narrative. I think a lot of this goes to like the just naturally slow deployment of enterprise AI, but this is the focus for Microsoft. They are the enterprise AI play. Yeah. One thing was notable is they weren't heavily teasing anything related to the next Gemini release? Yeah, they wouldn't tease that at earnings call. No, no, they have historically. So maybe they want to let the model speak for itself. Yeah, probably announced Gemini 4, I would imagine, announced it at Google I.O.

3:57Or a coding-specific model.

3:59John Coogan:Yeah, yeah, something there. I mean, there's certainly demand for it. They have the capacity. There's lots of opportunity. We'll probably be following that in three weeks when Google I.O. happens. So Microsoft, investors wanted to see Azure growth, co-pilot adoption, and a solid justification for all the CapEx. The stock's down 2%, nothing crazy, but Microsoft beat on headline numbers. Revenue was$82.9 billion, up 18 % year over year. And from an analyst perspective, it was a clean beat, but there's more nuance here. So in terms of AI adoption, Microsoft added about$5 million. Look at this beautiful LED wall.

4:38John Coogan:A million. Yeah, let's give it up to the L. Still underrated. We ordered this bad boy maybe like six months ago. Six months ago. Took a while. But it is fun. We need to figure out more things to do with it. On co-pilot adoption, this is the big question. For Microsoft 365, like total seats, you know, you think about Microsoft Teams, Outlook, like the standard Microsoft Enterprise seat, I think it's about$30 per user per month, competes with Google Apps, Enterprise, right? But Microsoft's been doing this for much longer. They have 450 million paid seats. So in terms of co-pilot, they added 5 million, which is great.

5:15John Coogan:They're at 20 million now. So that's a solid adoption, but it's still small compared to the 450 paid seats. Ideally, like every seat would have a co-pilot alongside of it. I mean, that's the idea, right? And so the question is, how quickly can they get that 20 million co-pilot seats up to 200 million, 400 million? You know, ideally everyone has one of these add-on subscriptions and that's lifting the overall business. Market reaction was a bit choppy as the new OpenAI relationship gets digested. And so there's two sides to the Microsoft OpenAI deal right now. Of course, OpenAI is no longer limited to selling just through Azure.

5:56John Coogan:Azure no longer has exclusive access to OpenAI models. OpenAI is now available on AWS as well. And it cuts both ways. So on one hand, Microsoft, they used to be the exclusive provider. If you're a sales guy at Microsoft on Azure, you're probably really excited to call somebody up and say, hey, you want to use GPT 5.5? We're the only place in town. Like, you should come over here. You should migrate more of your infrastructure. You should be using Azure. But it was probably frustrating because a lot of people say, no, we're locked into AWS. We are stuck in that cloud. And we'd love to, but we'll just use the API directly or we'll figure out some other workaround.

6:30John Coogan:But we're not moving for this. Yeah, or people could be like, yeah, we're open to trying it, but it'll take a couple quarters realistically to get ramped up. Yeah, and so from an Azure perspective, losing exclusivity is a negative. But from a business perspective, the more growth for OpenAI is good for Microsoft's equity stake in the company. And so these two tensions, like the capital balance sheet side of the business versus the Azure sales and acceleration side of the business, like these two are at odds. Not to mention co-pilot versus Codex. Sure yeah and so these two these two sides of the business are sort of uh butting up against each other and Satya Nadella ultimately has to go and un uh you know renegotiate the contract and they did and it seems like they're in a good place because uh a lot of people were sort of saying like oh well is this going to get messy is there some going to be some lawsuit here it seems like there was a very clean negotiation renegotiation and uh they open AI got rid of the AGI clause that allows them to to stop sharing models, but they are sharing revenue.

7:33Basically, the, I think, 2032 end date. Yeah, is just the end date. The IP share instead of this, like, arbitrary AGI.

7:42John Coogan:So over at Amazon, Amazon still, of course, the CapEx king. They top the CapEx forecast. But as scary as that would be, AWS is re-accelerating. And so that's very good news. So the stock moved slightly upwards. Q1 2026 sales for Amazon overall were 181.5 billion for the quarter. For the quarter, they're like on track to make a trillion in revenue soon. Up 17 % year over year, beating expectations. AWS is expected to see 25 % growth. That was the expectation, 25%. That's sort of where they've been. They came in at 28%. So they beat on AWS growth. And that's really, really important, especially for their scale.

8:21John Coogan:This was very good news. The ads business is still cooking, churned out$17.2 billion in revenue. And the chips business just crossed$20 billion run rate, which is very, very good. And they have big deals. AWS is in this interesting position, less of this like Google pure play, full stack, and more focused on working with both OpenAI and Anthropic at this point. And so that all justifies more investments in Terranium and AI infrastructure broadly. And the market seems to like it. huge CapEx numbers, but reasonable response from the market and the stock. So Meta had a rough go. Huge drop, nearly 10 % down following earnings.

8:58John Coogan:It's sort of jumping up and down now. But the core business was extremely strong. So Q1 revenue was$56.3 billion, up 33 % year over year. So high growth for the overall business. Ad impressions rose 19%. Average price per ad rose 12%. They raised the CapEx outlook from this. They have this range. It's within$10 billion of 125. They added 10 billion to both. So instead of saying, hey, we'll be between 115 and 135. Now they're saying we're going to be between 125 and 145. Will they actually get more compute for that? Or is that just a reflection of rising prices for all the inputs that go into compute spending?

9:36John Coogan:That's a big debate because there's one bull case where, oh, they're optimistic. They're going to buy more compute. But it's like, no, there's a possibility that they're just spending more to get the same amount of compute as they thought. But the big problem for shareholders, the big answer is it's not as clean of a story. Can you imagine, just take one second and imagine that Meta's a private company and their pitch is that we make AI agents for selling products. They're at a$200 billion run rate, growing 33 % a year. How's it priced? 20 trillion? Probably. With those operating margins? Yeah.

10:13I'm joking. It truly is one of the most incredible businesses of all time.

10:18John Coogan:But they don't have the cloud. But people are, yeah, yeah, they don't have the cloud thing. He's kind of acting like the most AGI-pilled CEO, like hyperscaler CEO, right? Yeah. He was talking about, like, basically talking about, like, RSI on the earnings call. He's like, it's not just about, like, coding. you know, coding, like he really seemingly believes and he doesn't want to be in a position where someone else has actual super intelligence and he does not. And so, and, and that's just like a little bit too fuzzy because when you look in the rest of the market right now, it's like productivity tools.

10:54Yeah. Right. And so the market just like, can't really read into it.

10:58John Coogan:Yeah. And they're just kind of like not even giving him full credit for the business that he has. Yeah. And I forget if he's ever mentioned the idea of selling tokens, selling AI infrastructure, getting in the cloud market. But it's way easier for an AWS. He kind of loosely mentioned that last year when he was starting to ramp stuff up, basically saying maybe we could do this at some point. Yeah. Because it's way easier to justify the CapEx at Amazon when you say, oh, well, regardless of how this market plays out, Maybe Anthropic takes some of the compute. Maybe OpenAI takes the compute. Maybe there's a whole bunch of new AI labs that take compute.

11:40John Coogan:Maybe we'll use it for our services, our own models. If models commoditize, it's still valuable. If they don't, it's still valuable. There's a whole bunch of different ways to shift that CapEx around and justify it. meta, it's got to show up in the AI figures. It's got to show up in the ad business, at least right now. And so there are questions about how the big capex spend feeds back into cash flow when the company doesn't have a platform with big enterprise AI contracts, massive RPO figures. There's not an easy place to just like stuff compute necessarily and at least get, you know, a market standard return on investment.

12:17John Coogan:Of course, they could spin up reselling. They could become a neocloud or or something like that, but at their scale, it's a whole new host of challenges if they go that direction, and I think that that's not the plan. I think you're dialing into it, that they are in fact recursive self-improvement pilled at this point. The other sort of tremor in the system was the fact that daily active people, which is something that they were, it's not users anymore, it's DAP, daily active people, declined sequentially since the first time that Meta began reporting the metrics, So less people were using meta platforms this quarter than previously.

12:53But they had some good explanations for it. They said that there were internet disruptions in Iran and WhatsApp restrictions in Russia.

13:01John Coogan:And so this was not representative of a real change in internet user behavior. And I think we all recognize that that is reality in the sense that there's not some up and coming social network that's eating meta platforms family of apps lunch, right? Like the TikTok threat came and sort of went. The Snapchat threat came and sort of went. Sora. Sora came and went, right? And so there was a different post I saw that social media use is declining, especially under young people, but it was already so high. It's not really showing up in the data. It will truly be insane if we get this new alien technology.

13:41We get LLMs, which in digital form can convince you that they're a person. and we end up getting no new big social platforms.

13:50John Coogan:Might just strengthen the current ones. Well, yeah. No, I mean, I think that's the base case right now, but it's still wild. I think you would expect, I think, again, if you rewound to like 2020 and you said, hey, we're going to have this technology where you can effectively have a digital twin of yourself, you would think that somebody would figure out some new. Yeah, maybe. I don't know. I continue to think it just strengthens the incumbents. Roblox, Instagram, WhatsApp, Facebook, like these platforms will just get more content on them that will probably be LLM generated, LLM enhanced. Even if it's not LLM written or developed, it's a creator taking less time doing other boring things and spending more time on their core output.

14:32John Coogan:So we'll keep tracking it. So overall, what did we learn this earnings season? One possible takeaway is that there's a little bit of a fracturing in the overall AI narrative. So the AI narrative over the last 12 months has basically been like, say the biggest number, biggest CapEx number, biggest deals, just grow, grow, grow. Now every hyperscaler reports a big CapEx number. But each company does have a different story. So Google's the full stack platform. Microsoft's focused on enterprise adoption and distribution. Amazon's most aggressive on infrastructure and partnerships with OpenAI and Anthropic.

15:09John Coogan:They have the cleanest, less, it's a less competitive relationship with Anthropic and OpenAI because they don't have the deep mind equivalent necessarily. Meta is all about ad optimization. And Meta is also this interesting, like high risk option on Frontier AI. Like it's possible that if TBD Labs, MSL, if that pays off, you wind up getting an OpenAI sized or Anthropic sized business out of it in the oligopoly world where they have a breakthrough. they get to something that's 5.5 or 4.7 level, and then they're competing in an equal level, and they're playing in that oligopoly. And so the meta traders or the investors are sort of weighing both of those sides.

15:51John Coogan:You have a very solid ads business, and then you have this call option on potential frontier AI, which is still early, but showing some really solid signs. So the market likes short-term revenue evidence right now, and there's still many strategies that will play out over the rest of the year. But this quarter was focused on can you justify your CapEx this quarter? And so we'll keep following it. Let's go over the timeline and see what people were saying. The headline numbers, of course, were huge cloud growth. AWS 28%, GCP 63%, Azure at 40%. Absolutely massive numbers. Remember, people were hoping for GCP just be at 40 % and it went up 63%.

16:36John Coogan:Absolutely massive. AWS, people are hoping for 30. They got 28. Not too bad. This poster, Ren, is comparing the price to earnings multiples today versus the dot-com boom. So today's MAG4 PE ratios, the companies that reported earnings, Meta's at 16x price to earnings, Google's at 17x, Amazon's at 24, and Microsoft's at 25 price to earnings ratio. Compare that to during the dot-com. Microsoft was at 73x. Cisco was at 200x plus. Yahoo was trading at 800x earnings. The NASDAQ as a whole traded at 200 times earnings during the peak of the dot-com bubble. Today's bubble is trading at 16 to 25x earnings on companies generating hundreds of billions of dollars in real cash flow.

17:23John Coogan:Now, they're drawing down on that cash flow. But even in some bizarre world where AI is a bubble and it's fake and we all go back to pencil and paper. We'll probably go back to digital advertising and spreadsheets in the cloud and, you know, SaaS and all of these companies will still benefit and be in a fantastic position. Yeah, the only thing that's, you know, or one thing that's imperfect with these comparisons is when you look at like the peak, you can say like, okay, MetaGoogle, Amazon, and Microsoft have relatively reasonable PE ratios. But if you look at the rest, you look at all the companies that have been started in the last like five years, especially in the private markets that have been marked up from 20 to 100 to 500 to a billion and beyond.

18:09Many of them have absolutely no earnings. And so you have to look at like, maybe something more like a Yahoo as like a decent comp, right, where Yahoo was trading at peak at 800x. And so...

18:21John Coogan:And there is some pushback in the replies here, reasonous forces. AMD's at$130, Tesla's at$350, Palantir's at$220, and Intel is at 900 times. I know. So it's very, very convenient to just take the four of the greatest companies ever in the history of the world and say, there's no bubble. They're reasonably priced. Yeah. I think it is useful to go back to the fact that there's a lot of hype in tech, but what's driving the vast majority of the market cap right now is still fairly low PE companies. Intel is so much smaller on a market cap basis than Microsoft, Amazon, Google, Meta, that even if you're overpaying on earnings for that, the overall market is anchored to a pretty decent earnings engine still.

19:14John Coogan:And that's the bull case here. George Hutz is back with a white pill. What'd he say? May 1st. He says, AI will create jobs. It's nice to see Jensen talk about this, and it's super obvious when you think about it. AI and immigration are fundamentally the same. There's new people showing up, and hopefully everyone understands how and why immigration creates jobs. Wants are effectively unlimited. It's classic Jevons paradox that if we make something more efficient, we end up using more of it. Or a cool aphorism I learned at Facebook, if you make the site 10 % faster, people spend 5 % more total time on it.

19:46John Coogan:He worked at Facebook for using an intern. He's part of the machine. Now, just like you get the wah-wah crying people about how immigration lowers wages for native-born Americans, and we've got to keep the hard-working immigrants out because you have some right to be lazy or something, you'll get this about AI. AI will outcompete some humans at some jobs, but protectionism is for losers. The important thing is that the overall pie grows, and inequality stays somewhat in check, not by redistribution, but by design. There will be more to do than ever before. or do the neighbor before we pull up this video of Jensen.

20:19Yeah,

20:20John Coogan:let's do it in the production chat for you. Yo, you have it. Yeah, we can play it. Great. I'm excited for Eric Suford's deep dive here. We'll get into that later. The Sufenator. The Sufenator. And reminder, we have the Isaacinator coming on in just seven minutes. Mike Isaac has been covering the Elon Musk versus. Do they do trial? Is it like a four day work week with trials? It is. Are they living in the future? It is. Wait, wait, wait. So can we pull up this screenshot? Because did you read Mike Isaac's full thread on his experience covering the trial? Did you read the whole thing? Because he's been live tweeting it.

21:01John Coogan:And it's very funny because he will post. So we got to zoom in here. This is a. Did you turn this into an infographic? So this is a minute by minute chronological log of off topic slash personal slash minor inconvenience moments. Because Mike Isaac will talk about, oh, Elon Musk just said this on the stage. Oh, the lawyer fired back with this. The jury said this. The judge said that. Right. But then in between that, he has been logging very, very minor inconveniences that he's experienced. So he talks about his lunch, the roasted tomato and corn pizza. He says he forgot a pillow for his bird to sit on.

21:42John Coogan:Wait, corn pizza? I don't know. He said he bought— That's a very Oakland thing. At 1607.45, this is transcribed from Exo. I think the Times are in UTC or something. He brought a water bottle but forgot to fill it in the rush for a seat. Now he's increasingly thirsty during an intense moment of testimony. Someone's laptop suddenly blasted a loud YouTube video in the gallery. This is a garden hose nozzle, it said. Courtroom mishap. So he's going through it all. It's very fun to track his. And we'll dig into his experience, both in the court and actually with what's going on with the case. But let's play this.