The Exchanges

Q I think this is notable because, uh, it just shows that there's so little room for error in this world that if you get, uh, you know, if you, if you get anything wrong, the market will interpret that they are going, that you're gonna, um, have some serious problems when it comes to AI. What do you think?

A Yeah. I mean, it's, it's every quarter of the earnings that come out from these big tech companies, it's sort of a lottery Like you look at the numbers initially and you're like, wow, those are big beats on revenue, big beats on profit. Like we're seeing a 30, a 39% growth in Azure and a huge increase in bookings. And yet the shares plunge. Microsoft gets absolutely killed in the market. And there are always games played by Wall Street, right? People don't just want to see you beat the analyst estimates. They want to see you beat the beat, right? And so Microsoft has found itself in this very strange situation. Where a one percentage point miss in its Azure revenue momentum causes it wipes, you know, hundreds of billions off its share price. And then people are also, there are also several other things going on at Microsoft. You know, there are some very interesting things disclosed, uh, about open AI. Um, but also it's capex. Microsoft is on track to spend a hundred and forty billion this fiscal year, which their fiscal year is a bit weird. It runs from to June instead of to December. Uh, and that's pretty much with on track with what they spent in the last quarter of last year, which was, you know, thirty seven billion. But people are questioning this. This is 66% more than they spent in the same period the year before. These are vast jumps. And then the other thing that caug…

AI assessment note: “Where a one percentage point miss in its Azure revenue momentum causes it wipes”

Q success in an industry that has no franchise value. Progress isn't linear. It's dynamic, sometimes dissonant, and always demanding, but it's also a new opportunity for us to shape Lead through and have greater impact than ever before. And yet, as I read Satyandela's words, I honestly cannot tell you why he felt the need to lay off, uh, 10,000 plus people in the recent months. What is happening here?

A Now, Nadella is, you know, a very savvy man. I mean, he, what he, what he did at Microsoft was essentially take it out of its various failed consumer enterprises and really refocus it on enterprises, i.e. corporations and businesses and data centers, Azure. And that's worked out extremely well for him, but he has cut his way to success for out of the consumer business, giving him the capacity, uh, to invest in the other side. What they're seeing now is that it's, they're going to be spending a lot more money. They like all the other, you know, um, tech companies are spending tens, if not, you know, soon to be more than a hundred billion on infrastructure every year. They also have shareholders to appease who want dividends, who want to see the share price continue to go up. And you've got to make the sums add up. So you, you have to take some of it out. So he's gambling that there are some non AI native people in the company who, who can be replaced either by AI systems themselves, or you can bring in cheaper, younger people that are better able to infuse this technology through the company and, and shake it out of its own ways. I do think headcount at Microsoft has actually stayed like roughly level. So whilst you've had a lot of these layoffs, they've clearly been hiring a lot of people as well. I think Mustafa Suleiman now has six or 7000 people reporting to him. And just th…

AI assessment note: “you've got to make the sums add up. So you, you have to take some”

Q mean, how, thinking through the exponential, do you think that they could do that again? I mean, I think they got close to ten billion last year. They didn't quite 10 X, but they got close. Do you think they could get in the range of a hundred billion? Because as these numbers get bigger, the task to 10 X becomes harder. It's not like an easy thing to do.

A They're certainly on the right track to get there. You know, they, they've got a lot of interest. They've embedded themselves in both very big corporations, but they also have like a, you know, dedicated fans in like, you know, the developer community and like individuals. So if you think about the revenues of some of the big tech companies now, you know, Google's not far off generating that much net profit in, you know, half of that in a quarter, right? So if you believe that OpenAI and Anthropic are the next, you know, you know, the next members of the Magnificent Seven or the Magnificent Nine, there's no reason why they can't get to a hundred billion in annual revenue. Now, of course, what has to happen for them to be viable companies long-term is that their costs have to come down. Because remember, these startups, Don't actually make any money at the moment. Uh, and if they are going to go for IPOs this year or next, uh, you know, and they're hiring advisors, bankers, and lawyers to do so, eventually, you know, the whole of their balance sheet will be laid bare and people will be able to take, take a better, take a better look, uh, under the hood and determine whether they're viable long-term businesses. But certainly Anthropic is, is going about things in the right way to secure its funding, like lock in, lock in more strategic partners long-term. So yeah, I mean, I think…

AI assessment note: “there's no reason why they can't get to a hundred billion in annual revenue.”

Q So one, one more question about this. Do you think this is AI related as in, do you think AI is like automating Amazon employees jobs, or do you think this is a financial decision that might make room for some of the AI investment?

A I think it's a little bit of both. I mean, it always is. They, they talked about thinning out layers of bureaucracy as every company does when they make cuts. Um, but I also think that they're seeing some of the, you know, Employees that have been able to integrate AI into their daily work life and become more productive. I think they're kind of looking ahead at that. Um, we don't have the exact demographic data of who they've let go, but I think it'd probably be more heavily weighted into the older employees that, you know, are maybe less able or less willing to adapt to this new AI powered way of working. Um, and certainly if you look, well, we get Amazon results next week, but there's no slowdown in momentum of the company's growth. So without, even though they've been taking all these employees out of the company, you see a short term hit because you have to pay all of them severance, but longer term, your cost base comes down dramatically.

AI assessment note: “I think it's a little bit of both. I mean, it always is.”

Q developer customers. But as we've reported, this is still the information. OpenAI is more than aware of this issue and has been working in recent months to improve the coding capabilities of its models. I mean, what are the implications that if OpenAI is, let's say, able to equal or pull ahead with Anthropic, which we know is the state of the art in coding, uh, with this new model?

A Well, they've pursued very different, you know, you know, subscription revenue models so far. OpenAI has You know, it's almost the verb, like to Google, you know, you chat or you GPT the question, especially if you're a young student, whereas Anthropica's claw doesn't just, just doesn't have the same brand recognition, but it has relentlessly gone after what they call enterprise customers, like big businesses, offers them access to their technology through APIs and has longer, bigger, and more visible contracts. OpenAI has long been jealous of this. It wants in on the game. Uh, it's also competing with Microsoft. Yeah. It's its own partner in offering these services through, you know, the Azure platform, but increasingly Google and Gemini, which, which trumps its, its coding chops. So if open AI is able to prove that its models are at least as good. If not much better, then it can start to take back some of this. And it really does change the, the competitive landscape. Cause I think GPT is the, you know, undisputed winner of like the consumer chatbot wars so far. What it hasn't proved is that it can make the transition to the business and governmental world in the same way that some of its competitors have. And maybe they were forced to go down that route because open AI was just sucking all of the oxygen out of the room on the app store.

AI assessment note: “then it can start to take back some of this. And it really does change”

Q billion dollars immediately. The project is now setting A more modest goal of building a small data center by the end of this year, likely in Ohio. But I think that small data center is like still a gigawatt data center. So small in the scale of what they promised, but still fairly large. Uh, what, what do you think is happening here? I'm really struggling to figure it out.

A So I remember when I first heard about Stargate, I was in Davos, you know, the big, you know, the big conference of the great and the good, um, over in a small mountain town in Switzerland. Uh, And this announcement, announcement blindsided everyone. I actually just recently met with the CFO of OpenAI a few hours before, and she gave nothing away. And everyone looked at these astronomical numbers, like half a trillion dollars, you know, a hundred billion initially, you know, the power on a scale, like almost unimaginable. And since then, we at the Financial Times have been trying to work out where this money is coming from, where it's going to be deployed. Uh, and just as you can see in the Wall Street Journal article, which is, which we've been writing along the lines of as well, it's, It's not clear that this is going well at all. Um, they haven't identified very many sites. The money hasn't fully come in from the huge Japanese investor SoftBank. Um, you know, I guess in any conglomerate that's at the frontier of artificial intelligence with multiple different, you know, agendas, it's very hard to get everyone on the same page. Like, where do you even build these things? Is there the power infrastructure there? Uh, this is all complicated by the tense re re Uh, restructuring negotiations as well. But what is very clear is that there hasn't been a hundred billion immediately d…

AI assessment note: “they haven't identified very many sites. The money hasn't fully come in from”