BATMMAAN Takes Over Wall Street: Nvidia, Big Tech Earnings & Fed Fog

Hello and welcome back to the Market Maker podcast. We've got 3 themes as always that we're going to talk about. Number 1 is Nvidia just became the first company to briefly top $5 trillion because it went over that mark, came back a little bit. What happened in one meeting with Trump and Xi that wiped billions in minutes? We'll look to explain. Then a good segue is the big tech earnings. Big tech all beat earnings this week, but one soared, one crashed 11% on almost the same numbers. So that's the difference. A single shift in what markets now care about is something I know you want to talk about a little bit, Piers. And in fact, I did read one journalist talking about the Mag Seven moniker looks more like it needs updating. Do you know what it's going to be updated to?

Ooh, I don't know.

Batman. Oh.

Batman.

So, Batman. Two M's. Ooh, two A's. Okay. So—

Two M's, two A's.

Any idea who the B is?

Well, that's it. I'm getting stumped by the B straight away, which is why I'm not really getting much further through the acronym. B would be, um— I don't know.

I'll put you out of your misery. So the B is actually the 6th largest company in the S&P 500 by index weighting. And that of course, as everyone listening knows, it's Broadcom.

Oh, Broadcom, of course.

It's getting hoovered up in the AI storm, of course. Bigger than Tesla, bigger than Meta is Broadcom. Yeah. So if you were to put the Batman together, it's worth an eye-watering $24 trillion combined, and that's about 40% of the S&P, just for context.

So hang on, Batman. So you've got Apple, Tesla, Meta, Microsoft, Apple, Amazon, Apple, Amazon, then the Netflix. Is that the end?

No, Nvidia, not Netflix.

Of course.

What era are you living in? Netflix. Come on. This is like 5 years ago.

Can we just start this episode again? It's a bad start.

Well, you're going to quiz me and I've got, so I've got my ChatGPT ready for when you quiz me. I'm going to bang in those questions as you're speaking. And then the third theme we've got. Is the Fed cut rates again earlier this week, but Powell somewhat surprised the markets by warning the next cut might not come at all. And so what's spooking the Fed?

Please.

Yeah. Happy Halloween, folks. And then a couple of shoutouts quickly before we begin. Very quickly, Adele, Ria, and Charles at Warwick University, they've been a huge help to supporting a lot of our campus presence at Warwick in the past week. Simi, who actually came up to me in one of these events and said she'd been listening to the show, Piers, since she was at college. So doing her A-levels and they used to actually have it in their form shooters and listen to it together.

All right.

And then they've all gone on now to secure jobs. She's going to Deutsche Bank. So that's pretty cool.

That's very cool.

And then Slavik, Anthony Cheung, who stopped me in a Leon cafe in London yesterday. He had his suitcase with him, his full suit on, and he said he was just about to go and interview at Deutsche Bank across the road. So I hope you smashed it. I'm sure you did. But look, let's dive in and let's start with, I guess, with NVIDIA as a talking point. Perhaps I can talk a little bit about the rise and then you can talk about a little bit of volatility that came on the back of this highly anticipated meeting between the two heads of state. So Nvidia, first company ever to cross $5 trillion. I was just thinking those milestones that were put out for Elon at $10 trillion Tesla, you're like, yeah, wow, we are already, we're already talking fives now. And I know Tesla's a way off the Nvidia pace at the moment, but you know, they all, you know, one's moving the other. They're a collective, right? With the S&P, the concentration, it's 40% for Batman. I mean, if they're all moving, then everything's going to move to some respect. So that $10 trillion doesn't sound as radical as it did just 6 months ago. Yeah. Never mind 5 years. So it will be interesting. Having a look at this $5 trillion, some context. So that company now accounts for nearly one-tenth of the entire S&P 500 as a metaphor, because people love to say this. Not quite. I know the technical, you'll get shouted out for the technical comparisons. But NVIDIA's value exceeds the GDP of nations like India, Japan, and Germany. Just to give it a bit of sense.

Well, yeah, it's the third biggest in the world. There's only the US and China that are bigger than $5 trillion.

That's just insane, isn't it? Yeah. But yeah, how did this happen? So just a quick brief history of time. So product execution and demand for this Blackwell, you're going to read and hear about Blackwell a lot. So Nvidia confirmed it had shipped 6 million Blackwell chips so far and has orders for another 14 million over the next 5 quarters. I thought I was going to say 5 years, 14 million over the next 5 quarters. So that represents roughly half a trillion dollars in sales.

I mean, in Yeah. In 15 months.

Right. And that's your order book. So this isn't like forecast, that's just expectations, rough finger in the air. This is an order book. So this is insane. And that's what bumped the stock 5% on Tuesday. The other big thing Nvidia had was you might have seen a very snazzy conference in DC in the States. Jensen Huang doing his best work as he always does on the stage. But they continue to secure business through partnerships. It's kind of like we've talked about a little bit before, bit of a circle jerk, but that aside, there's this idea that, look, how do you really secure your order book? Well, you do it through strategic alignment with partnerships. And this keynote speech that he gave NVIDIA's first ever tech conference that they held, here's just a flavor of some of the some of the clients that we're talking about. You might have heard of this number one client, the US government. So they're pretty good, pretty good at paying their bills. Pretty good checkbook, pretty reliable customer. So the US Department of Energy, they're working together to build 7 new supercomputers, including one system using 10,000 Blackwell GPUs. So that's one. Uber, collaboration to build a fleet of self-driving cars. Eli Lilly, agreement to sell 1,000 GPUs for drug discovery workload. Nokia, yes, still alive, partnership to help develop next-generation 6G cellular technology. Plantier, Oracle, new tie-ups, enterprise cloud deployments, obviously, robotics ecosystems. That was more about AI power initiatives for Amazon, Foxconn, Caterpillar. I mean, these are some of the biggest companies on the planet. Yeah.

And across sectors.

Right.

Right. So there's good diversity there in terms of their order book across sectors.

Yeah. So this 5% move, which is huge for a company of this magnitude that we saw at the beginning of the week. So it was the update on that order book, the demand on this Blackwell chip side. All of these strategic partnerships that they're announcing. And then on Wednesday, Trump said he planned to discuss NVIDIA's Blackwell AI chips with President Xi Jinping, calling them super duper. So technical as ever is the US president. But his remarks were coming ahead of a meeting in South Korea. The statement, so for the context here, the reason why the market got very excited was about access or potential regaining access to China, world's largest market for AI hardware. So since 2022, US export restrictions have effectively banned NVIDIA selling its most advanced chips to Chinese buyers. And that market share went from pretty much completely everything, 95% to zero. Trump had previously talked about a watered-down diluted version of the technology that he could sell to the Chinese, but who's going to I'm gonna buy that. So investors are very much this idea of, okay, the company is doing really well. The China part is like the cherry on the cake that could really unleash the next move. And so that hadn't happened, but just the signal that they were going to be talking and this was potentially on the table and Trump sounding positive, that got us there. So that's led us to the meeting. So tell us what happened at the meeting.

Well, yeah, I mean, that backstory is important. I mean, you say, well, I want to challenge two things you've said. So you said their China market share has gone to zero. I would, without any sort of clear hard proof, I would speculate that's not true. And that whilst the export restriction is in place, there's plenty of Blackwell chips getting through to China via other markets, Singapore, Vietnam, right? There's shell companies getting set up in these other countries buying Blackwell chips and then shipping them through the back door into mainland China. So there's definitely a bit of a sort of circuitous route around that kind of tariff barrier.

This goes to show the different social circles we hang out in.

But obviously the volumes are heavily reduced than what they would be if the tariff barrier wasn't there, clearly. Right. So secondly, yeah, so the idea has been that, and Trump has been talking to Jensen over at Nvidia about, right, can you come up with a chip that's less powerful? And it's like, I think it's 80% of the kind of power or whatever term you want to use to describe the output of these things. Right. So an 80% version. And maybe that's a kind of a chip that the US government's prepared to allow to get exported. Of course, the US government's kind of stance here is they want to kind of kneecap the ability for China to keep up in the AI race, right? And obviously the Nvidia chip is the king of all chips in this race. And so if they're not, if they can't get their hands on those, it'll slow them down. That's the whole point, right? And so, right, maybe Trump will allow an 80% Blackwell chip. I would say, who, you said, who would want to buy that? Well, to be honest, an 80% Blackwell chip's probably better than any other chip available to the Chinese. So actually even at 80%, still best in class in China, I would say. So there is a market for it. So this meeting, yeah, as you said, teed up. Let's see, Trump came out of it. Here's what he said. It was an amazing meeting. On a scale of 0 to 10, with 10 being the best, the meeting was a 12. So, good old Donald. Peel the layer off the top of that comment. What got agreed in this meeting? Virtually nothing. Did they talk about Nvidia and Blackwell? Not once. Wasn't even discussed, which is why the Nvidia share price then took a bit of a, you know, a downturn and a nosedive, because obviously the anticipation and the hopes were, right, that would be a key item on the agenda. Something would get agreed, great, the tariff barrier would be reduced, removed, whatever. They didn't even talk about Nvidia. So what did they talk about? Well, not much, to be honest. And well, they talked about a few things. What got agreed was not much. So what got agreed? Well, again, in Trump style, Trump kind of piled out and going, yeah, you know, this is amazing. They've agreed to buy massive amounts of soybeans. 'Cause this has been one of China's sort of levers in this kind of war. China buy a lot of soybeans off US farmers and they've been restricting their purchases. As part of this war, right? Well, China have now agreed to step up purchases and so they're going to be buying 12 million tons this year. It's going to go up to 25 million tons next year and over the next 3 years. And Trump's like, yeah, massive soybean deal got done. That's just returning the sales volume to the 2024 volumes. They're not, this isn't like a mega amazing deal. It's like just, okay, return back to last year's levels. The other thing they talked about was China postponed their rare earths controls. So another key lever, the biggest lever of all that China have in this battle is their dominance over rare earth supply to the planet. And obviously that's a key component in everything electronic. So they've agreed to, um, kind of, you know, postpone their, their threat to curb exports outta China. So that's obviously something key, but we were expecting that. That kind of got sounded out and muted out about a month ago, so it's not really a surprise. Then other little bits, they suspended measures targeting each other's shipbuilding industries. The US is holding off on its extension of tech-related export controls and basically halving their fentanyl tariff, which, you know, what kind of impact is that going to have on China? Minimal. It might lead to 0.1, 0.2% bump up in their GDP. Look, this is obviously a top-level meeting between the two big guns and it's optics mostly. What actually got decided there and then in that meeting, very little. But look, it was only like 1 hour long. I mean, what can get done in such a short space of time, right? But yeah, Trump loves a soundbite, so piled out super positive, but in reality, not too much progress got made.

What was interesting is just before we jumped on to record this, I did go back and watch some of the keynote from NVIDIA's conference. And wow, was that a homage to Make America Great Again. I mean, really, the political alignment of this is almost outrageous. It starts with like the original foundations of the American country, and it starts with the word America on the screen. I mean, Jensen is going full board into the Trump world at the moment for obvious reasons, I guess. But yeah, anyone have a look at that on YouTube. It's quite amazing how that starts. It's like an advert for tourists of America. It's how far he's gone. But look, there's lots to talk about in this episode. So maybe as ever, our fabulous researcher Saab does a really good section on strategic themes, which sort of summarizes a lot of the topics that we do. So maybe I just whip through that and we'll move into some of the big tech earnings. So summarize then this Nvidia situation. So AI craze and valuation lift Nvidia's brief jump to $5 trillion. Just talking about this idea of the AI boom can pull a single hardware leader into an economy-sized valuation. So AI demand still both real, still compounding. Everyone's talking about the bubbles. I'm sure there'll be many on the fence who will say this is further evidence of the bubble that we're at, but hard to go against that client roster and order book information that came out this week. Yeah.

There's like one point, just to interrupt, that order book's awesome. Amazing. That's not guaranteed money in the bank though, in the future, right? That's an order, you know, can these customers afford to actually fulfill those orders is the risk. But yeah, so sorry, carry on. Yeah.

Two-point, second point, policy headlines. So just the responsiveness, you know, if Nvidia moves 5%, the whole market moves to some respect over that very brief period of time. So, you know, just the whiff of smelling, of selling, sorry, some of these AI chips into China. So definitely continue to monitor those trade dialogues very closely. Fundamentals is the stabilizer. I think that's a nice way of summarizing it, which is you can kind of get these ebb and flow of the trade deal. That volatility level is obviously heightened given the negotiation techniques of Trump and the way he tends to approach these things. But underlying that, and that aside, as we've discussed, the fundamentals are looking pretty solid at this moment in time on that real demand. The political alignment, just discussed that. He's, you know, Huang's visible cooperation with the US goals. A couple of these things were from producing in Arizona to praising the economic agenda, to doing large US deals. You know, every, you know, he's putting the company at this center of making America great again with manufacturing and his company's at the epicenter of that. And then approving US-China tone. I mean, you said not a lot has come of it, but as you and I know, just the fact that they're talking is actually a meaningful thing. And given the fact that what, it was only a week ago that had a bit of a Barney and a fallout. So it is a little bit farcical. And I guess one thing is, what do you think about the idea that the magnitude of market reaction to some of these potential Trump-Xi engagements will start to get diluted over time because the nature of it's becoming quite a behavioral trend now that we get this fallout, talk, deal, fallout, talk, deal.

Yeah.

And it's becoming quite a regular pattern.

Plus they are, you know, the trend is moving towards a deal, right?

Mm-hmm.

And so whilst the speed of that movement might be slow, You know, if you go back to April, which is like 6 months ago, you know, there it was like, oh wow, maybe it's 150% tariffs. No deal was like a genuine thing. That's way behind us, out of sight in the rearview mirror now, that mega risk. So now, so the risks to the outcome, you know, the best possible and the worst possible risks have narrowed and narrowed and narrowed as they've gone along and You know, so that's another reason why the market reactions would naturally be smaller as well.

Okay. Well, look, let's talk about the other big tech stocks and there's been quite a few of the Batman club. So which ones do you want to start with first?

Well, I want, I've got, I want to talk about all of them together, but maybe we should do that at the end. Let's tackle the kind of individuals first. I want to talk, let's take Google. Or I should say Alphabet. If you want to trade Google, you need to buy Alphabet shares. Alphabet being the parent company, but 99.5% of the value of Alphabet is Google. But yeah, so let's talk Google. I mean, so phenomenal earnings. And look, you've got to understand that coming into this earnings season, and I think I mentioned this maybe last week or the week before, these tech Stocks have been on an absolute tear, right? The S&P index overall is up 40% since the April low, since the kind of tariff tantrum April low, it's up 40%. Now obviously most of that is tech. It's the big tech. As you've just said, Batman's 40% of the index, right? Obviously it's those big guns that are leading that 40% charge. Point being, these share prices are super high. Like relatively. So to get any more upside, having seen the huge climb behind, to get any more upside, you need sensational stuff. These figures need to be off the scale good. You know, just good is not good enough, right? Because your share price is pricing in the absolute awesome scenario. So what happened to Alphabet? Well, actually their share prices went up and actually overnight in overnight trade, because these tech earnings get released after Wall Street close. So Alphabet and Meta, and I think Microsoft were on Thursday, sorry, Wednesday night. So the 30th, sorry, the 29th of October, Wednesday after the close. Right now after the close, you still get this sort of like closed market movement. So we talk about after the close share price movement. So In aftermarket moves, the Alphabet share price was up, I think, 8% at one point at its best, or 6, 7, 8%. And by the, but by the close of Thursday's session, it'd kind of come off a bit. It was up, but like more like 3%. Okay. So look, Alphabet, that's been one of the best performers, by the way, even out of the big tech in terms of share price upside in the last 6 months, that got a bit more on the upside indicating obviously these numbers were phenomenal. One thing that stood out to me, $100 billion in quarterly revenue. Yes, that's quarterly revenue. In 3 months, they sold $102.3 billion worth of services for the first time in their history. That is just extraordinary. And that was a 16% year-on-year growth. That's the amazing thing about big tech. They're so monstrous in size and yet their revenue growth, it's like a startup. It's quite extraordinary, right? So here's my pop quiz for you. So they got north of $100 billion in one quarter. Give me, name any other companies in history that have notched more than $100 billion worth of sales in one quarter.

It's gotta be Amazon.

Correct. Yeah. There's one other.

One other of the big tech.

Not a tech stock. See, you think more, think more Amazon in a way, not the techie part of Amazon.

Hmm. Walmart.

Yep. Bang on.

Okay.

These are the monster retailers, right?

Mm-hmm.

But they operate on super wafer thin margins. Okay. So actually Amazon, I think they had a, their best was $170 billion in one quarter. Walmart clocked $180 billion actually, but their margins are super slim. So when you take the top line, which is a hun— for Alphabet, $102.3 billion, the most amazing thing is also then their profit margin. So they actually generated $35 billion of profit in 3 months, which is absolutely astronomical. The numbers are just mind-blowing, to be honest. But you know, why did the share price rise? Well, those numbers beat expectations. Their cloud business notched over $15 billion in one quarter compared to $11 billion just the same quarter, the previous month. So obviously, you know, even more accelerated growth in that cloud business side, which speaks to the, obviously the AI boom and the data center buildout and the kind of insatiable appetite for compute power that these AI models require. And so obviously that's another, as well as NVIDIA's order book, right? It's the growth of these cloud businesses, Google, AWS, Amazon, you know, Azure over at Microsoft, they're the big three. You know, if they're motoring and growing super fast, that's another sign that the AI kind of revolution is still solid and growing. So yeah, look, Google smashed it. Amazing stuff. I'll, I'll, I'll—

just before you, just before you move on to Meta, I think it is you're going to talk about. I was just going to have a quick look at the year-to-date performance. And NVIDIA is obviously a standout. They're up like 50%. Next is, and only a fraction, a whisker behind is Google, is Alphabet.

Yeah.

Apple's up like 8%. Microsoft's up like 24%. Google is up 50%. And do you remember everyone was saying, what, again, this was like less than 12 months ago. It was like AI, they're not delivering, they're behind the curve. Gemini's rubbish. They're losing the cloud market share. It's not as rapid as some of the others. Can't penetrate AWS. What's changed?

Well, I think what's changed is this, as this kind of AI revolution advances, people have thought a little bit more, to start with, it was just like buy anything that's anything to do with AI. Right. It doesn't matter if it, as long as it's got those two letters attached to it, buy it. And Nvidia were obviously the starting point of that. I think as time's gone on, you've gotta understand how the phases of this revolution. So firstly, it's like the chip builders, like the obviously Nvidias, but then it's like the data center buildouts. This is like the infrastructure layer, if you like. And then obviously you've gotta have the apps that will enable businesses to run more efficiently. ChatGPT, right? So you've then gotta have that kind of product, you've gotta productize it. And then finally, it's actually the businesses themselves out there across the planet, which will see efficiency gains, margin improvements, and therefore, you know, profits and kind of share prices go up. That's the kind of third and final part. Okay. Now, as we're looking at this, Google basically will benefit from all three phases. There's very few companies. In fact, I don't think there are any others that have got all three because they're building their own chips. Actually, they've got some really interesting stuff coming down the pipe to actually rival NVIDIA's. They've got the cloud infrastructure, so that's in place and they're benefiting there. They've got Gemini, which is the ChatGPT kind of rival. That's not so far, at least cannibalizing its big revenue stream, which is Google search ads revenue. Okay. At the moment, that's, that's what people thought. They thought that Gemini, which is when you Google stuff now, you just get that kind of Gemini sort of summary answer at the top. Obviously their original business is 10 blue links. Search something, 10 links. The top few are ads that companies are paying to be at the top. Great, that's their money, right? So the idea is people wouldn't click on the links anymore. It's going to kill their revenue, ad revenue business. It just hasn't. In fact, their ad revenue business is just growing as well, right? So I think that's a key part here in why the story's turned on the Google stock. But yeah, it's just generally the fact that they're going to be big beneficiaries of all three phases and that they've got wild cards. Out there with all their DeepMind stuff going on with Waymo, you know, all of these other kind of sort of side projects that could be monstrous in the future as well. So look, Google's smashing it and 50% up. Yeah. Year to date obviously showcases that. It's interesting though, 'cause Meta, if we just move on, Meta, very similar in one respect, very similar. right? Amazing revenue growth. They actually had faster revenue growth than Google. So their revenue grew at 26%. I mean, back to that point about startup growth, this is insane. They clocked $51 billion, right? So they only do half the sales that Google do at this point, but their growth rate's 26%. And yet, so remember Google's share price popped 6, 7, 8%, then fell back and closed the following day. Up 3%. Meta down 10%. So why? You got 27— I mean, what's Zuckerberg got to do here? 26% revenue growth and yet the stock price dumps by 10%. And so here I want to kind of just delve into this kind of more broader story. I know you want to talk about Amazon. And maybe touch on Apple. But, or do you want to do that first and then I'll talk about the broader story? Because why did Meta dump? I mean, we'll come back to.

So I'll just give a quick overview of some of the numbers. Yeah. Because these are important companies to be aware of. So Apple beat Wall Street expectations very much in line with what you were saying. So their sales, $102.5 billion. So welcome to the club.

Yep.

And then also, so that's the first time Apple has ever topped $100 billion in a September quarter.

Right.

So there's a bit of seasonality to it. Their shares actually initially dipped and then they rallied and went after their earnings came out. So bit of a mixed bag here of things to look at. So iPhone sales rose 6%. So that was at $49 billion. So actually missed expectations, but demand for the higher-priced iPhone 17 Pro models boosted your average selling price, which is an important factor. The other things here was China again. So China has been a bit of a thorn in Apple's side for some time, and it continues to be the case. China revenue was down just over 3.5%. So analysts were expecting $16.4 billion. It came in at $14.5 billion. That's a meaningful miss, but I guess in some ways it's not new news. China has now declined in 7 of the last 9 quarters for the company. The bright spots, when you talked about interestingly the layers of this kind of like Google has. So on the service side, the App Store, iCloud, Apple Music, so on record, $28.8 billion up 15%. In terms of some of the other kind of line items of revenue, Mac revenues jumped 13%, new products coming out. iPad and wearables pretty flat. So despite the China issue, the one thing that helps the stock price reverse was guidance. Because at this time of year, going into November, analysts and investors are very keen to get the early signals of how they anticipate the holiday season to go. Which is a meaningful part of the year for the company. And Apple guided the holiday quarter to be effectively huge. Revenue's expected to rise 10 to 12%. It could be the best iPhone quarter in the company's history is what. So don't let us down, Tim Cook, if you're going to put out that kind of feelings. But Tim Cook also, as you would expect, putting out the usual As you said, let's just plug in an AI phrase, and we know that they are quite far behind, to put politely, in terms of the AI race. But Apple doubling down on AI, he went on to talk about a new Siri is coming next. And I know you are a big fan of Siri, Piers. And then some upcoming launches, smart glasses, smart home devices, all part of the long-term plan. What's interesting I find from an innovation perspective, You watch the Nvidia conference and what Jensen's talking about, and then you watch what Tim Cook talks about. You're like, these are just two different companies here. This is kind of like one's cutting-edge technology, the other is like this old industrial company from like the pre-industrial age coming up with some new things. But nonetheless, Apple earnings were fine. So a bit good parts, some negative parts, but overall nothing too exciting, I'd say. Amazon, on the other hand, wow. I mean, we're talking about one of the world's largest companies just going through the roof. They smashed expectations. So those sales numbers, $180 billion, so easily beating forecasts. AWS, so Amazon Web Services, that jumped 20%. So again, these numbers are insane. Fastest growth in almost 3 years.

So again, that's key there.

Yeah. I think when you're kind of looking for all of these different potential signals that you can get on, is this an AI bubble and how far down that road are we, or excessive invaluations, this is just other reinforcing points within that supply chain that things are looking pretty solid.

So, and with just on the AWS with, so I mentioned the big 3, like AWS, Google Cloud, well, I should say AWS and Microsoft Azure are kind of neck and neck from a revenue point of view. Google Cloud's below them, but catching fast. And actually, over the last couple of years, Amazon's AWS growth has been way short of the Azure and Google Cloud growth, implying that Microsoft and Google are winning more of this increased AI market share than Amazon were, right? So that growth rate on AWS in this earnings report was like, aha, Finally, right, they're actually, they've got their act together. Now they're actually enjoying some of this AI boom on the cloud side, which they weren't really getting much action on before. So I think that's one of the key parts here.

And I think better integrated into the AI narrative, which obviously gets a better valuation than doing smart glasses or home devices that Apple are doing from an investor's perspective, right? Is that CEO Andy Jassy was talking about Amazon's retail chatbot. So the chatbot, Rufus, it's called, could add around $10 billion a year in sales is what they're talking about.

Is that on the Amazon platform?

I've not come across it.

I haven't seen that.

But maybe it's a rollout feature in North America first. Not sure. Bedrock, that's its AI platform, could become as big as EC². I wasn't sure what that was, but I looked it up. That's virtual servers in the cloud.

Yeah. So that's the AWS kind of, that's the underpinning foundation of AWS basically from a, yeah.

And then there's custom AI chips. They're already sold out. Trainanium 2, they're called. And then Amazon doubled data center power since 2022 and plans to double again by 2027. So It just fits much better into that ongoing narrative, I would say. So despite concerns about overspend on AI, and I know you're probably going to talk about this in the summary, it's kind of the spending and the realities of it, but their shares jumped 13% after these numbers came out, which is just incredible. One soft spot that did get flagged was profit margins did slip. Because of spending heavily on data centers and automation. So operating income slightly below expectations. International and North American margins both missed slightly. But again, to round off holiday quarter, what's that going to be like? They said better than what Wall Street had been anticipating. Revenue projected, check this out, at $206 to $213 billion.

Wow. Okay. Forget $100 billion. To what, in the holiday quarter?

Well, yeah, yeah. Holiday quarter. That's why I've got noted here.

Wow.

I've got a fat finger misprint. So yeah, incredible. But yeah, talk to me about the step back. Yeah. The broader view for these tech stocks.

Well, look, I think to date, Yeah, I mean, look, you, I guess you take Amazon and Meta there, right? Amazon up 13%. Meta, I just checked actually, were down 11%. All right. The rest were kind of somewhere in between. Alphabet up 3%, Apple up a little bit, went down and up a bit, right? The rest are in between. But like you take those mega extremes, Amazon up 13%, Meta down 11%. Basically, I would say broadly speaking, up until now, These tech stocks have been benefiting from super strong revenue growth, which has been the key measure that this AI spend is justified. 'Cause check out what's going on with, on the revenue side, right? But I think what's going to happen from this moment onwards, and we've seen it with the Meta stock reaction, I think this, we draw a line in the sand. Chapter, whatever chapter we're on here of this AI thing, that chapter's finished. We're into a new chapter now, and this is going to be much more about, well, what's the impact to margins off the back of this ridiculous spending that's going on by these big tech firms? You know, the amount of billions that they're throwing at data center buildouts and all this kind of stuff. It's like, well, okay, I get you're competing with each other and you don't want to lose the race, and so you've got to spend, spend, spend, spend, spend. But ultimately, to what end? And is there going to be a return on investment? Revenue growth-wise, things is nice and solid, right? We've talked about that. Meta up 26%, right? And if you actually look back at the last 4 quarters, the average revenue growth, I'm going to take the big 5, Alphabet, Amazon, Apple, Meta, Microsoft. Okay, I'm taking Tesla and Nvidia out here, which are kind of wildly more, way more volatile. So I'm taking these 5 only. So last 4 quarters, the revenue growth has been Alphabet 13% on average, Amazon 11%, Apple 7%, so slower. That's why it's been underperforming, not part of this AI success story yet. Meta 21%. Amazon, best out of the whole lot. Microsoft, 16%. Okay, that's the previous 4 quarters. Looking ahead, it's actually about the same. Well, for the next 4 quarters, the forecasted revenue growth of all of these businesses is about the same, with one caveat on Meta. So one reason why Meta stock dumped 11%, even though broadly their numbers look quite similar to Google, one reason was the trend. So their growth rate is decelerating. So last 4 quarters, 21% average, next 4, 19%. Alphabet, it's 13% over the last 4, 13% over the next 4, right? Compounding at the same rate. So Meta's got a slightly decelerating growth rate, and obviously investors don't like that much, right? But that aside, that's a small point. 21% to 19%, it's not a, It's not a disaster, right? Point is, revenue growth looks really solid. But when you start to look at the EPS, the earnings per share growth, well then last 4 quarters, epic. You know, Alphabet 37%, Amazon 54%, Apple 31%, Meta 37%, Microsoft worse at 19%, but like epic stuff. Okay? But then when you take a look at the next 4 quarters, this is where it just all falls off a cliff. So Alphabet, 37% last 4, next 4, 5%. Amazon, 54% growth in the rearview mirror. Looking ahead, 2%. Apple, 31%, going down to 7%. Meta, 37%, going down to 1%. Microsoft, 19%, and actually holding up. We're expecting 16% looking forwards for Microsoft. So why? Well, there's two words why. Depreciation expense. Oh yeah, baby.

Oh yeah, baby. You roll that out when you're out chatting to girls at the bar tonight, Piers.

It's all about that depreciation expense, didn't you know? When these companies start talking about, yep, we spent whatever billions last year and we're going to double it and spend another twice that next year in terms of buildout, data center buildout, capital expenditure. We're in this race. We can't fall behind. We've gotta spend, we've gotta double spend, double spend, double spend. Well, what, how does this work from a kind of accounting point of view? It doesn't all drop onto the bottom line. Their profits so far haven't been impacted by all this spending because they do this accounting trick. Of basically capitalizing the costs and spreading that cost, even though they spent it all this year, 2025, let's say they spread it evenly out over like the next 7 years. So they only take 1/7 of the hit this year. Okay. To the bottom line. The problem is if they then spend a load next year, right? Well, they only take 1/7 of the hit and the rest gets spread out into the future. But you've got last year's 1/7 coming in now as well. So you've kind of got 2/7. Then the next year, right? It kind of rolls. You only, that the spending that specific year, fine. You take 1/7 hit and it gets spread out. But you know, you got the historic stuff that you've gotta now, it's catching up with you. So the point is we're into what it'll be year 3 or even year 4 of this AI boom in 2026. So the kind of spending from behind is starting to add up. Okay? And as they're accelerating spending as well, point is it's really going to start to weigh on that bottom line. And I think Meta are right in the crosshairs here. And when you start looking and really drilling down into stuff like, well, so in terms of their capital expenditure, Meta, for example, this 2025, they spent $70 billion. Next year it's going to be $104 billion, which is kind of in line with everyone else. Alphabet spent 90 this year. They're going to spend 107 next year. So that's key. Alphabet, all right, spent more this year, but the growth of capital expenditure at Alphabet's slower even though it's the same, like 107 at Alphabet in 2026 versus 104 from Meta. But Meta have their growth rate of expenditure is much more rapid. And the problem with Meta is they've got much less profit They got half of Alphabet's revenue, and of course the profits are like nowhere near as well. And so when you start to look down onto free cash flow, then actually out of all of these 5 companies based on projected spending for next year, Meta's the only one where the percentage change in free cash flow is going to go down. We're expecting a 32% drop in free cash flow next year. Everyone else's free cash flow continues to march higher even though they're spending more, their revenues are greater and their profits are greater. And so Meta's the one here that's, I guess it's the smallest fish in this pond trying to fight to keep up, which has been fine up until now. But ultimately because of this depreciation expenditure thing, it's really going to start to hit the bottom line, and that's what investors are going to be worried about next year. Either they really start to get that revenue engine revved up and you start to see much more, much faster revenue growth than we're projecting because the return on investment or all this spend is going to actually start right now. But people aren't expecting that next year, probably not even the year after either if you listen to Zuckerberg. So here's the problem. We're probably going to go back into another bit of a black hole here, particularly for Meta, where their spending's kind of way over the top. So that's why their share price got a massive hit by 11% yesterday. And I think we're into a new chapter for this race.

Oh, you talking bearish Meta gets me excited. No, not for the downfall, but for the quite the opposite. 'Cause I remember when it was the nail in the coffin moment and it was the right time for Meta. But I'm not sure, I don't know if you, how quickly you can pull it up, but Meta's over what, an 18-month period, so probably more than a year. I mean, they've been on an absolute tear, right? Over the last—

Yeah.

Well, they're, they're lo—

so they, they have been through this cycle as you're hinting at.

Yeah.

That was pre-AI boom. This was the metaverse. You'll remember.

Yeah.

Well, actually back in 2021, Zuckerberg was going, right, we're going to build this metaverse. Probably going to take us a decade, but we're going to spend huge amounts of money on it. Right. And then in the end, investors went, what? This Meta, is this going to work? It's so far away. Is this really worth it? And actually the stock price got hammered and troughed at the end of 2022 at $84. Okay. And that was a multi, that was a kind of, that was lows not seen since the noughties.

Oh, I still just kicked myself for that sub $100.

Yeah. $84. It topped out in the summer. 786. It's been a decent run, but this isn't new. I guess this year, whilst this rally's been going on broadly, even before their earnings where their share price dropped 11%, that they were kind of still treading water around where they were trading back in June, right? So they had kind of kind of their uptrend had stopped and it had been more of a side, you know, sideways at all-time highs. But this sell-off now has taken us back. Yeah, we haven't seen these share prices for Meta since May. And actually, if you go back, lots of volatility with the Trump tariff thing. So actually we were trading this share price back in January for Meta. But I do think that I personally, I think there's downside risk here for Meta still. All right. I reckon over the next few quarters, this is going to be the worst part where their spending's going to ramp. It's going to really hit that EPS. And unless something currently unknown happens in a positive way, I just think that's going to be a negative theme for Meta. Now they might then turn the corner and shoot off like they did last time, but yeah, I'm a little bit worried for Zuck. In the coming 6 months.

No, it's interesting with the stark difference in terms of the, within that Batman, let's say, or the Mag 7, whatever you want to call it, the high concentration within those tech stocks. I was just thinking about if you are just a passive investor putting money in your S&P 500, what are you actually betting on these days compared to in decades gone by? I mean, it's so different now, isn't it? It's just a bet on big tech.

It's a pure tech play. But I say that, but then if you think about Nvidia, back to the start of the conversation, is it a pure tech play? Because where's Nvidia's revenue coming from? All sectors. So from that respect, you kind of, even though it is tech, it's kind of, It's just economic growth, right? And if this AI thing works, like the whole AI revolution, well then all sectors are going to benefit. It's just we're still in that early phase. So it's those kind of the infrastructure build-out people, the Nvidias that are kind of currently the poster child.

Alright, well look, let's see if we can wrap up and get through the Fed in the next, you know, 7, 8 minutes or so. So the Fed, Earlier this week cut interest rates very much as expected. The federal funds rate now at 3.75% to 4%. But Powell warned strongly that another cut in December is not guaranteed. Markets had priced, again, the cut was expected, but markets were looking for a 90% chance of another cut following it. That decreased to around now just a 60% probability. So, Yeah, maybe I know we talked about this at depth about the balance sheet. I know there's a few bits there maybe to update on, but some of the language, what did we hear here from the Fed?

Yeah, I mean all the balance sheet stuff, obviously the rate change. So they cut, you know, that, that, that was all expected stuff basically. So really the key takeaway here, here are some of the words used by Powell regarding that December cut. Probability, and he said it's far from assured, given for two reasons really. A, given strongly differing views on the committee. So again, we had two dissenters, right? So they cut rates by 25 basis points. They had two dissenters, two people disagreed in both directions. So you had one member saying no cut. Basically, they're worried about inflation, which is ticking up. They're worried about the fact the government's shut, so we're not getting any an up-to-date data flow. Okay? That's what they're concerned about. You then got Trump's, what's his name? I've forgotten his name now. Mirren, is it? Trump's guy in his back pocket. He wanted a 50 basis point cut, right? So you got those two dissenters. So Powell's saying one of the reasons why it's not really certain yet what we're going to do is because look, this committee's really split. Number two, he used a really good analogy, which I think makes a lot of sense. He said if you're driving in the fog, You slow down, meaning, well, the government's shut. We're not getting any up-to-date data flow on the labor market, on inflation. Without visibility, how can we make decisions? And so that's his argument. And so he is saying markets, you know, this 90% probability thing, you've gotta back off that. We're nowhere near that certain. To be cutting. He's not saying they're not going to cut. He's just saying markets, you got to rein it in a little bit. It's not as clear-cut as you're pricing. So it went from a 90% chance of a December cut. I think we're down to a 60% chance now, last measure. So that's the main takeaway from the whole meeting.

So at the moment then, we're awaiting updates, what from Capitol Hill, what, how's that going to play out? They need the data points to be more informed. Yeah. And it's kind of playing by ear at the moment.

Well, you've already got most people fully expecting this government shutdown to be the longest ever. And like nothing, you never hear anything about it, do you? I mean, I mean, all right, I know it's earnings season. I know Trump's talking to Xi, you know, I know there's big stuff going on, but you'd have thought you'd be hearing something about negotiations going on behind the scenes to get this thing resolved, but this just seems to be radio silence.

The fact that you are not is exactly why I think you're right. There's going to be a record shutdown because the negotiations only happen when your feet, your toes are dangling off the edge of the cliff. And we haven't got to that point anywhere near that point yet. So no, there's no need to even converse with the other side of the table at this point. Not until there's leverage enough that there's the threat of something more material.

So, so Powell, to be fair, I kind of agree with him, right? It's only because inflation has been ticking up. So if you're just going to extrapolate trends whilst we're blind and we don't have any more data, let's just extrapolate what was going on before, which was a softening of the labor market that was going down and a an uptick in inflation that was going up. And the problem is you don't want to be cutting rates if inflation's trending up. You do want to cut rates if the labor market's trending down. So that's their key problem, right? And whilst you're blind, yeah, I mean, you just slow down a bit, don't you?

It's great analogy. Yeah, that's the headline for the show right there. All right, good stuff. So as ever, Uh, if you've made it through to the end, thank you so much for listening. Hope you found that useful. I know lots of students I met this week are deep in interviews and things like that. So hopefully this is useful. Wishing you all the best and we'll see you next week.

Have a great weekend.