Big Tech earnings show how big, smart spending can be rewarded by the market
I am growing tired of the endless bubble talk about all of the data center spending. It's obvious from this quarter that the bubble talk has been proven wrong; try getting someone to say that, though. So, who do I think...
$4,200-$4,600 — Gold (GC) Where to settle in June?
An important development from the financial markets: I am growing tired of the endless bubble talk about all of the data center spending. It's obvious from this quarter that the bubble talk has been proven wrong; try getting someone to say that, though. So, who do I think I am to go there?
One who believes that this was the quarter where we realized that if you didn't spend, you were already behind the 8-ball. This quarter, so far, we have seen the results of five large companies that are often discussed as creating the bubble: Club names Alphabet (parent company of Google), Amazon , Apple , Microsoft , and Meta Platforms (parent company of Facebook, Instagram, Threads, WhatsApp). Those are five of the "Magnificent Seven" stocks.
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6 is Nvidia , which we also own; it reports on May 20. Tesla is the seventh, but we don't own it. ) All so far have spent a huge amount to build out their sites.
All have much more building to do. Let's look at how much the companies estimated their capital expenditures to be this year and how their stocks did this week before and after earnings. Alphabet, data center spend, $180 billion to $190 billion, stock price: $349 to $385 for a 12% weekly gain.
Amazon, data center spend, $200 billion, stock price: $260 to $268 for a 1. Apple, data center spend: $13 billion, stock price: $271 per share (April 24 close) to $280 (Friday close) for a 3. Microsoft, data center spend, $190 billion, stock $429 to $414 for a 2.
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Meta, data center spend, $125 bilion to $145 billion, stock price: $670 to $605 for a 9. Consider what they used that spending on: Alphabet: Google Cloud, tensor processing units (TPUs are custom chips co-designed by Club name Broadcom ), and graphics processing units (GPUs) Amazon: Amazon Web Services (AWS), Anthropic cloud capacity; custom Trainium, Graviton, and Inferentia semiconductors Apple: private cloud Microsoft: Azure companion, OpenAI compute needs Meta: Internal training, recommendation engines These are the broad-brush spend numbers, and we can learn a lot about the bang for the buck now that we are a quarter in full artificial intelligence motion. Here are some conclusions.
Alphabet and Amazon have had some excellent post-earnings reactions. I think that Alphabet's stock is reacting to the incredible growth of Google Cloud and the perfect steerage of Thomas Kurian, who runs the cloud business. Google Cloud is the fastest-growing at 63% with an annual revenue run rate of over $80 billion.
This quarter, it had $20 billion in revenue. Google also uses its spend to bolster the seamless transition from Google Search to Gemini. Amazon's stock rallied because Amazon Web Services is now growing at 28% with an annualized revenue run rate of $150 billion and a quarter where it did $37.
Financial markets are tracking the development closely as investors assess the likely impact.
