Latest news with #MarkShmulik
Business Insider
4 days ago
- Business
- Business Insider
Welcome aboard the 'AI crazy train'
Big Tech is in an AI arms race, each company trying to outspend the others on data centers, GPUs, networking gear, and talent. Engineers can be let go. But the infrastructure? That's permanent. If the AGI dream fades, you're stuck with massive, costly assets. So when Google announced it would hike capex by $10 billion to $85 billion in 2025 eyebrows went up. Most of it is for things you can't walk back: chips, data centers, and networking. Google is "jumping aboard the AI crazy train," Bernstein analyst Mark Shmulik wrote, referencing a song by the late bat biter Ozzy Osbourne. Meta's Mark Zuckerberg brags about Manhattan-sized data centers. And Elon Musk keeps hoarding GPUs. While Sam Altman is building mega-data centers with partners. JPMorgan dubbed this " vibe spending," warning OpenAI might burn $46 billion in four years. It's no shock when Elon, Zuck, and Sam flex on capex. But Google? That's surprising. "Google doesn't do this," Shmulik said. The company has been viewed as measured in recent years, prioritizing investment intensity with care. Not anymore. Now investors want to know: Will these swelling bets pay off? There are promising signs. Since May, Google's monthly token processing (the currency of generative AI) has doubled from 480 trillion to nearly a quadrillion. Search grew 12% in Q2, beating forecasts. Cloud sales surged 32%. CEO Sundar Pichai said Google is ramping up capex to support all this growth. But it's still a huge gamble. "Does the current return on invested capital seen in both Search and Cloud hold up at higher [capex] intensity levels," Shmulik asked, "or is the spend a very expensive piece of gum trying to plug an AI-sized hole?" He leans optimistic.
Business Insider
4 days ago
- Business
- Business Insider
Welcome aboard the 'AI crazy train'
There's a fear in investing when a sector swells rapidly. Booming stock prices and aggressive spending feel great, until things inevitably cool off. Then comes the reckoning: Who overdid it in irreversible ways? Big Tech is in an AI arms race, each company trying to outspend the others on data centers, GPUs, networking gear, and talent. Engineers can be let go. But the infrastructure? That's permanent. If the AGI dream fades, you're stuck with massive, costly assets. So when Google announced it would hike capex by $10 billion to $85 billion in 2025 eyebrows went up. Most of it is for things you can't walk back: chips, data centers, and networking. Google is "jumping aboard the AI crazy train," Bernstein analyst Mark Shmulik wrote, referencing a song by the late bat biter Ozzy Osbourne. Meta's Mark Zuckerberg brags about Manhattan-sized data centers. And Elon Musk keeps hoarding GPUs. While Sam Altman is building mega-data centers with partners. JPMorgan dubbed this " vibe spending," warning OpenAI might burn $46 billion in four years. It's no shock when Elon, Zuck, and Sam flex on capex. But Google? That's surprising. "Google doesn't do this," Shmulik said. The company has been viewed as measured in recent years, prioritizing investment intensity with care. Not anymore. Now investors want to know: Will these swelling bets pay off? There are promising signs. Since May, Google's monthly token processing (the currency of generative AI) has doubled from 480 trillion to nearly a quadrillion. Search grew 12% in Q2, beating forecasts. Cloud sales surged 32%. CEO Sundar Pichai said Google is ramping up capex to support all this growth. But it's still a huge gamble. "Does the current return on invested capital seen in both Search and Cloud hold up at higher [capex] intensity levels," Shmulik asked, "or is the spend a very expensive piece of gum trying to plug an AI-sized hole?" He leans optimistic. Still, Google shares rose just 1% after these results. Not exactly a resounding endorsement.
Time of India
4 days ago
- Business
- Time of India
Alphabet shares jump 3% as AI-driven spending fuels cloud revenue surge
Alphabet shares rose more than 3% in early trading on Thursday as the Google parent's earnings underscored a key message to investors: AI spending is climbing, but so are the returns. The tech giant has raised its 2025 capital spending forecast by $10 billion to $85 billion and signaled even higher outlay next year, stepping up efforts to meet soaring cloud demand and stay competitive in Silicon Valley's escalating AI race. Its cloud-computing unit delivered an almost 32% jump in second-quarter revenue, surpassing expectations, as investments in in-house chips and the Gemini AI model began to pay off. The results bode well for rivals Microsoft and both of which have been stepping up data center investments and operate larger cloud businesses. "Google came back fighting this quarter," said Bernstein analyst Mark Shmulik. "Investors have long been clamoring for Google to get more 'aggressive' in the AI race," he added. An early AI pioneer with its invention of the Transformer model - the foundation of most modern generative AI - Google appeared to fall behind OpenAI and Microsoft last year. But it has rebounded this year, with AI Mode reaching 100 million monthly users just two months into its wider rollout, and Gemini surpassing 450 million monthly users. Its ad business, which accounts for about three-quarters of its sales, also continues to fare well in the face of economic uncertainty wrought by tariffs and geopolitical tensions. Revenue in the business rose a better-than-expected 10.4%, a positive sign for rivals such as Meta and Snap that rely on digital ads for most of their revenue. At least 27 brokerages raised their price targets on Google stock after the results, taking the median target to $220 from $200 a month earlier. Still, some analysts warned the higher spending may draw fresh scrutiny from investors, who have largely stayed on the sidelines this year. Alphabet shares are up just 0.5% in 2025, trailing Microsoft's 20% increase and a 22% rise in Meta stock, also held back by regulatory battles that are looking to break its illegal monopoly in the search and the ad-tech markets. Alphabet's 12-month forward price-to-earnings ratio stands at 18.88, trailing Microsoft's 33.03 and Amazon's 33.31, according to data compiled by LSEG. "On paper, it has all the right tools to lead in AI - cutting-edge models and massive distribution," said Matt Britzman, senior equity analyst at Hargreaves Lansdown. "That said, until there's more confidence AI integration won't cannibalise core search revenue, and some clarity around ongoing legal battles, there's enough uncertainty to cap near-term upside."
Yahoo
5 days ago
- Business
- Yahoo
Alphabet hikes AI spending plan: 'It's about time,' analyst says
Bernstein internet equity research analyst Mark Shmulik joins Market Catalysts with Julie Hyman and Wedbush Securities managing director and equity analyst Dan Ives to discuss Alphabet's (GOOG, GOOGL) earnings report and the tech giant lifting its capital expenditure (CapEx) outlook. To watch more expert insights and analysis on the latest market action, check out more Market Catalysts here. Shares of Alphabet are rising this morning after initially falling as the company announced that increase in capex spending for the full year. It now expects to spend $85 billion this year. That's $10 billion more than the previous forecast. And CEO Sundar Pichai reassuring Wall Street that the investments are necessary to keep up with strong customer demand. Here with more is Mark Molik, Bernstein internet equity research analyst and still with us, Dan Ives from Wedbush Securities. Mark, I want to get to you first because it is interesting that initially the street, uh, the stock reaction was sort of negative to that bigger capex number and then it seemed to be okay. We're convinced that it is necessary and it's supported by demand. How are you thinking about it? It's about time. Um, you know, I get the shock, you know, it's a big step up. It's very ungoogley, uh, you know, the the kind of $10 billion step up in capex. And I imagine some of the algos saw kind of the free cash flow compression, you know, driven by that step up in capex as well. Um, you know, but this has kind of been a a place where every single kind of mega cap has been talking about the risk of underinvesting is greater than overinvesting and I think that's doubly true in Google's case, given kind of search is, you know, front and center and what they're trying to do with their cloud business. Uh, I think it's about time that they stepped up that investment and, you know, I think this shows a slightly different, perhaps more aggressive side on Google that, uh, at least from my seat was, uh, very well received. And so what does this do for them? If I'm an investor and I'm looking at this increased capex spend and I, you know, where are they deploying it? What is it? What's the sort of ROI on doing something like this? Yeah, I think for now the ROI looks really good, right? And you've seen that in kind of the acceleration in the cloud business, not just on GCP side, but you know, kind of the bundling of of Gemini into workspace. You've also seen that on improving kind of core performance. Management spent a lot of time talking about engagement improvements on, uh, you know, kind of AI overviews, AI mode, the Gemini app, etc. and how that's monetizing it. At least for now, you know, AI overviews at a similar rate. So the ROI today looks really good. Uh, you know, the question is, does that continue, right? You know, how are they acquiring kind of GPUs and TPUs on the on the capital side, you know, the allocation kind of seems to be kind of 50/50 between the cloud business and core. Does that mix continue, uh, on a similar dimension? So I think that's still an open-ended question. Uh, you know, we're cautiously optimistic that, you know, current ROI continues, but uh, but we'll certainly see. And then Mark, on search, does this quarter show that the, the kind of rumors of the death of Google search have been greatly exaggerated? You know, this has kind of been consistent, right? They haven't missed a quarter in search since Chat GPT launched, you know, two and a half, almost going on three years ago. Um, you know, this stuff takes a long time and perhaps revenue is a lagging indicator. I know there's been a lot of focus on paid click growth, you know, which also accelerated, but then we've got YouTube accelerating and improving as well. So we'll see what happens over the next two weeks when the rest of the digital ad sector reports. You know, we think it's probably going to be pretty good for the entire sector. So it's more of a secular trend at the moment of just strong digital ad growth entirely, but this seems to be one of those things where it's kind of been, you know, instead of slowly than all at once, it's kind of the opposite. It's all at once of all this fear and all this behavior change, but then actually shift behavior from here, shift dollars. Like that's a much slower process. And in the meantime, I think Google search is executing very well on what they can control. Right. Dan Ives, when you go to search something, do you Google it? Do you Chat GPT it? Do you cloud it? I don't know. It's a combination. I mean, look, but but I think those are great points. The the reality is is that you look at Google, they're back at the cool kids table. And they're stepping up. They're no longer in the corner, you know, where the view is, they're on the defensive. They're on the offensive. $10 billion step up capex, great numbers on search. I think, you know, I think there's 25, 50 hour upside from here, and I think it just shows like this is an AI arms race. You cannot be on the outside looking in. We've talked about it. The AI party 10:00 p.m.. It was 9:00 p.m.. That party goes to 4:00 a.m.. The last thing one to be is on the outside of the party looking through the window. 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CNBC
5 days ago
- Business
- CNBC
Alphabet signals ‘AI arms race' is alive and well, analysts say
Alphabet's strong earnings report seems to be quashing any fears on Wall Street that the artificial intelligence trade has peaked. The Google parent's second-quarter results — released on Wednesday afternoon — painted a healthy picture of the tech stalwart's current AI ambitions. Back in February, the company forecast it would invest an expected $75 billion in capital expenditures this year as builds out its AI offerings. But on Wednesday, the company upped this figure to $85 billion, justifying this increase by pointing to "strong and growing demand for our Cloud products and services." Boosted by Alphabet's positive second-quarter earnings, chip stocks such as Nvidia , Broadcom , Micron , ASML and Advanced Micro Devices all rose during Thursday's session. GOOGL 1D mountain Alphabet shares in the past day If Alphabet's earnings report is any indication, the competition amongst tech old guards to build the best and biggest AI products is merely in its first innings, according to Wolfe Research. "Alphabet's results provided further fuel for the AI spending narrative as demand for AI products drove an increase in sales and capital spending, with GOOGL raising its outlook to spend an additional $10B in 2025," the firm wrote in a Thursday note. It continued: "Our sense is GOOGL's results will continue to spur the AI 'Arms Race' across Mag 7 companies and the market as a whole. We expect further upside revisions to capital spending by the Mag 7 over the course of this earnings season as the race heats up and companies continue to invest heavily as aggregate spending is set to grow 40% y/y in 2025." Wall Street's reaction Across Wall Street, analysts such as Bernstein's Mark Shmulik and UBS' Randy Abrams highlighted Alphabet's foray into the AI arena as they parsed the company's results . "Investors have long been clamoring for Google to get more 'aggressive' in the AI race, with solid performance in Search and Cloud pointing to solid [return on invested capital] thus far," Shmulik wrote. "Google was the first hyperscaler to report and will be a positive signal if its peers echo similar sentiment of higher demand further pushing up spending and delaying the point on catching demand," Abrams said. "For the tech supply chain, TSMC already kicked off the season discussing its expectations on AI led demand through 2026 and we expect hardware results over the next few weeks to still see ramps though 2H25." Meanwhile, Deutsche Bank analyst Benjamin Black pointed to this increased AI demand as a bright spot on Alphabet's latest report. "Capex expectations for FY25 increased by $10bn to $85bn despite continued supply constraints as AI Investments and Cloud infrastructure supply requirements still outpace demand," Black wrote. Brian Nowak, an analyst at Morgan Stanley, underscored that Alphabet's innovative investments could be a longer-term catalyst driving upside in the years to come. "Search, YouTube and Google Cloud all accelerated as GenAI-enabled innovation is driving faster growth," the analyst said. "Our EPS ests are largely unchanged.... but we remain OW as this accelerated pace of innovation sets up GOOGL for more durable multi-year growth." Barclays analyst Ross Sandler and Ronald Josey of Citi pointed out that Wednesday's results show that Alphabet's previous investments are finally beginning to pay off. "Alphabet showed off a lot of great metrics in 2Q, everything from search paid clicks to cloud revenues are accelerating on the back of years of heavy AI investments," Sandler wrote. "Given Google's Commercial and AI queries continue to grow as its AI surfaces support more use cases now that AI-O is global, AI Mode expands, and Gemini adoption ramps, Google's newer products appear to be resonating as its strategy comes into view," Josey added. JPMorgan analyst Doug Anmuth was similarly bullish on the company's print. "Google delivered what we believe is a defining quarter w/32% Google Cloud revenue growth, increasing scale of AI search products, and greater benefits from AI across every part of the business," Anmuth said. "We believe the combination of strong AI-driven Cloud demand and accelerating backlog makes Google Cloud a bigger driver of the bull case going forward."
