00:00 Speaker A
I’d like to start talking about Meta and Microsoft here. I look forward to hearing from them. What specifically would you like to hear from Microsoft to have confidence in your return on spend when it comes to AI-related CAPEX spending?
00:23 Speaker B
Well, I think there are a few things. So, first and foremost, we want to look at their margins and see if they’re starting to realize the benefits of AI adoption internally, but we also want to hear about these capacity constraints. Because, if you remember Brooke, this was one of the big factors that kind of throttled the growth that they’ve seen in their cloud business as they continue to add more and more capacity to both their AI and their data centers. With that in mind, I would say you need to be very careful.
01:00 Speaker B
What they’re saying about remaining performance obligations and outstanding balances to the extent that we expect them to continue to increase going forward as they did in the September quarter. I think that can give us some peace of mind. It also doesn’t matter whether a business in this large backlog number has a high probability of reaching its capacity from the time it’s up and running until it’s recorded as revenue.
01:21 Speaker A
Chris, this week comes at a time when investors are a little concerned about the risk of an AI bubble. If you’re ready to receive a message from Meta, what’s different here? What should you hear on the earnings call?
01:46 Speaker B
Well, there also comes down to what their capX level will be. But, but for me, there are two things that you really have to focus on when you think about meta. First of all, what are the trends in advertising? Are they continuing to outperform the market? And remember, Brooke, they’re in the process of really spreading the advertising business model across Threads and WhatsApp. They tell us they should be able to get more ad dollars. But again, the next thing to look at is the margins.
02:27 Speaker B
We’ve seen them continue to lean into AI to not only drive a better mix of ads, but also help with automation. Therefore, productivity may increase. We should see it flowing into their margins. That’s what I’m paying attention to.
02:49 Speaker A
Chris, have you heard anything about that type of backup or reversal of their efforts with the Metaverse?
03:02 Speaker B
You know, I have to say I was always a little skeptical about it. Well, I think that’s smart in that they’re leaning a little more into wearables with glasses, smart glasses, but I’d like to hear how they’re going to expand that array and bring the price down and make it even more affordable, Brooke.
