Week Ahead: Alphabet, Microsoft, Amazon

0:02 Bloomberg Audio Studios, podcasts, radio, news.

0:08 The Stock Movers Report, your roundup of companies making moves in the stock market, harnessing the power of Bloomberg data.

0:17 Let's take a look now at some stocks making news in the week ahead. I'm Nathan Hager, joined by Bloomberg Intelligence Global Head of Tech Research, Mandeep Singh, because we do have another Very busy week for tech earnings in the days ahead. I think we're going to hear from, what, three of the Mag7 this week, Mandeep?

0:32 Is that right?

0:33 Yeah. Yeah.

0:34 So which are the most important ones for you, as I think we're hearing from Alphabet, Microsoft, and Amazon this week?

0:42 Agreed. And look, I think what we saw from SpaceX and Meta was that they are looking to raise their CapEx in a big way. SpaceX actually gave the numbers, but Meta didn't. And When I extrapolate that to what we can expect from Microsoft and Google and Amazon, it's very obvious that CapEx numbers will be revised higher. Now, the difference will be that all three of them will talk about how they expect cloud segment growth to accelerate. Remember, these are the three biggest hyperscalers when it comes to cloud infrastructure. And what we have already started to see is their growth rates are accelerating. And this quarter will be another proof point of that. And that will be the basis for them to increase their CapEx for next

1:40 year and possibly 2028.

1:42 Is that going to be something that's well-received by investors? You mentioned the SpaceX forecast, and we saw a pretty big stock jump there. But when Meta Platforms announced that they were raising their CapEx forecast, the stock got punished pretty badly.

1:59 Yeah, and Meta did not give the specifics in terms of how much are they looking to raise CapEx and what kind of equity issuance or debt issuance they're looking to do. But the difference is Meta doesn't have a cloud infrastructure business. So that's where all these three companies, which have a combined backlog of over $ 1. 5 trillion, if you add up the backlogs of Microsoft and Azure, Google Cloud, and Amazon AWS. It will be north of $ 1. 5 trillion already.

2:34 And a lot of it is coming from the two frontier labs, OpenAI and Anthropic. But there is no doubt that in terms of monetization, These three hyperscalers are at the forefront of monetization because of their scale in cloud infrastructure. And I think that will be the big difference. If they're able to show a significant acceleration in cloud business with holding margins steady, which has been the case so far, I think the stock reaction will be different from what we saw with Meta.

3:07 So how do you see the horse race now, Mandy, between Google Cloud, Microsoft Azure, and Amazon Web Services?

3:16 So Amazon AWS used to have almost a 50% market share in the traditional cloud world. Now with all the new clouds coming to the scene, which are specializing in these AI data centers, that market share has dropped. So clearly, you know, Amazon AWS is not 50%. It's much lower. And you've got a long tail of new clouds that are growing very fast in the AI data center world.

3:47 Among the hyperscalers, I feel Google Cloud has taken a leap forward in terms of growing its market share relative to Amazon, partly because of their vertical integration with TPUs and what they're able to do with their own infrastructure stack where they have got everything from chips to models to the cloud infrastructure. and they're doing it at the lowest cost. So that will be a big differentiator in terms of Google cloud margins and Amazon AWS does have its own chips, but Google cloud right now has a bigger scale and it's reflected in Anthropix leaked numbers in terms of their $ 750 billion commitments. About one third of that go to Google. So from that perspective also, Google has the most backlog from Entropic, and I think that

4:38 may help their faster growth.

4:40 And what about Microsoft Azure? You mentioned Anthropic's $ 750 billion spend and maybe Google Cloud being a big part of that. Is Microsoft Azure going to be a beneficiary of that as well?

4:52 Yes, all three of them. In fact, Amazon and Google is where Anthropic has mostly deployed its infrastructure so far. But going forward, they do have over a $ 100 billion commitment with Microsoft Azure as well. So Like I said, all these three clouds will benefit. It's just a question of whether Google Cloud will go 90% and Amazon AWS will grow slightly lower. But all three are growing in this case.

5:21 Are high double-digit growth expectations enough for investors at this point, Mandeep?

5:31 They are given the scale of these businesses. I mean, Google Cloud is already north of $ 100 billion. And, you know, if they're growing 90%, that's a stellar growth rate. Even for Amazon, which is $ 150 billion business, growing 40% is a very impressive growth rate. And it shows the ROI there. when it comes to all this huge CapEx spend that we are talking about. And that's what I meant. These companies have the revenue to show for the CapEx. In the case of Meta, the revenue will come. It's just not there right now. And it's going to test investors' patience.

6:08 So then, after all the jitters that we've seen in the AI trade, depending on which company reports earnings from one day to the next, what are your expectations in terms of whether these reports this coming week are going to underpin the AI trader or maybe add to some more of those jitters?

6:26 I think that may calm some of the fears that we have seen around monetization and obviously the neocloud bond yields going up. So these companies have some of the best credit in terms of the ratings and they have a lot of firepower when it comes to issuing debt and raising their capex. And if they are able to show commensurate ROI on that capex spend without having the investors to wait for when the returns will show up, I think that will be cheered.

7:03 The Stock Movers Report from Bloomberg Radio. Check back with us throughout the day for the latest roundup of companies making news on Wall Street. And for the latest market-moving headlines, listen to Bloomberg Radio Live. Catch us on YouTube, Bloomberg.com, and on Apple CarPlay and Android Auto with the Bloomberg Business app.