Google EXPANDS Gemini AI model lineup: ‘As good as it gets’

CHARLES: ALL RIGHT, FOLKS. THERE HAVE BEEN SOME BUMPS IN THE ROAD LATELY. YOU KNOW, , WITH THIS GOOGLE, SI WANT TO BRING IN FINANCIAL GROUP CIO ALSO CHIEF ECONOMIST, JASON WARE, SO, JASON, YOU KNOW, THE STOCK CAUGHT ITS STRIDE, DOING EXTRAORDINARILY WELL LAST YEAR, YOU KNOW, AND LAST TIME THEY REPORTED THEY DID EXTRAORDINARILY WELL BUT NOW THERE IS QUESTION MARKS AND AFTER HITTING THAT ALL-TIME HIGH WE PULLED BACK A LITTLE BIT. JUST WANT TO TALK ABOUT WHAT YOU'RE EXPECTING AND LOOKING FOR , TOP AND BOTTOM LINES LET'S BEGIN THERE. >> GOOD TO BE WITH YOU CHARARLS AS ALWAYS. LOOK, I THINK THE BIG THINGS TONIGHT ARE GOING TO BE OBVIOUSLY, CLOUD, CLOUD REVENUE, CLOUD GROWTH, MARGINS AND THEN CAPEX SPENDING, BOTH WHAT THEY SPENT IN THE QUARTER AND THEIR OUTLOOK FOR SPENDING IN THE QUARTERS AHEAD. THOSE ARE IMPORTANT AS IT RELATES TO GOOGLE'S CORE BUSINESS OF COURSE, THAT IS HYPERSCALE, THE CLOUD BUSINESS, WHICH IS BENEFITING FROM A.I. WORKLOADS BUT ALSO, AS IT RELATES TO THE BROADER A.I. TRADE, HOW MUCH THEY ARE GOING TO SPEND GOING FORWARD IS OF GREAT IMPORTANCE SO ALL THOSE THINGS WILL BE MORE CRITICAL TO THE GOOGLE STORY VERSUS WHETHER THEY BEAT BY FIVE CENTS OR 10 CENTS, SO TO BE CLEAR WE THINK THEY WILL DO $3 OR BETTER IN EARNINGS. CHARLES: $3 OR BETTER SO ON THE SPENDING SIDE, IS THERE A PARTICULAR NUMBER, DO WE NEED TO SEE THEM KEEP THE PACE THEY HAVE KEPT IN THE PAST? >> GREAT QUESTION. ON THE SPENDING SIDE EXPECTATIONS ARE AROUND 45 BILLION IN Q2 CAPEX AND I THINK IT'LL BE CLOSER TO 50 AND MORE IMPORTANT WILL BE THEIR OUTLOOK. THE STREET IS STILL EXPECTING AROUND 185 BILLION FOR THE FULL YEAR 2026 AND I THINK IF THEY COME IN AROUND THERE THE A.I. TRADE IS FINE AND I THINK IF WE GET CLOSER TO 200 IN TERMS OF THEIR OUTLOOK IT'S GOING TO BE ALL SYSTEMS GO. I SUSPECT IT'LL BE A SLIGHT INCREASE IN THEIR OUTLOOK FOR CAPEX. CHARLES: WITH THAT IN MIND HOW WORRIED ARE YOU ABOUT HOW THEY ARE GETTING THIS MONEY? OF COURSE ALL THESE COMPANIES USED UP A LOT OF THE FREE CASH FLOW, THEY ARE DOING DEBT OFFERINGS. THEY HAD THE $80 BILLION EQUITY OFFERING. DOES THAT BOTHER YOU THAT MAYBE THERE'S NOWHERE ELSE TO EVEN FIND THE EXTRA CASH THEY ARE LOOKING FOR? >> NO. IT DOESN'T BOTHER US. WE HAVE TO REMEMBER THAT GOOGLE DOES SOMETHING ON THE ORDER OF, YOU KNOW, 180-200 BILLION IN OPERATING CASH FLOW, SO THEY ARE WELL-FINANCED IN TERMS OF THEIR ABILITY TO UNDER WRITE THEIR CAPEX SPENDING, WHILE IT'S TRUE THAT THEY HAVE BEEN TAPPING THE CAPITAL MARKETS, NOT JUST GOOGLE BUT AMAZON AND OTHERS HAVE BEEN TAPPING THE CAPITAL MARKETS, THEY ARE DOING IT OUT OF NEED BUT DOING THAT OUT OF FINANCIAL FLEXIBILITY AND BEING SMART WITH THEIR CAPITAL STRUCTURE. WE CELEBRATE IT SO THEY'VE GOT ACCESS TO CHEAP CAPITAL AND TONS OF OPERATING CASH FLOW. YES THAT IS SUPPRESSED THEIR FREE CASH FLOW BUT I THINK THAT'LL PASS AS WE GET CLOSER TO END OF DECADE. YOU STILL WANT TO OWN THIS BUSINESS. CHARLES: WITH THAT IN MIND, LAST YEAR, THEY STUMBLED OUT OF THE GATE. ALL OF A SUDDEN, THEY HAD THEIR OWN A.I. OFFERING, GEMINI, WHICH THE STREET FELL IN LOVE WITH. ALL OF A SUDDEN THEY HAD THEIR OWN TPU, CHIP THING BUT NOW THREE DELAYS WITH GEMINI 3 3.5 D THIS MORNING I DON'T KNOW IF THIS MADE US FEEL BETTER BUT THREE OFFERINGS BUT THESE ARE MUCH LESS POWERFUL A.I. OFFERINGS, AND AT SOME POINT DO THEY HAVE TO GET BACK INTO THE A.I. RACE? >> YOU KNOW, I MEAN, THEY ARE IN THE RACE. THERE'S NO DOUBT. AS I THINK ABOUT LIKE WHOSE GOT THE BEST "FULL STACK" WHICH IS WHAT WALL STREET IS TALKING ABOUT THE FULL STACK APPROACH TO A.I., GOOGLE IS ABOUT AS GOOD AS IT GETS. WE HAVE TO REMEMBER THE STARTING POINT MATTERS. YOU MENTIONED A YEAR PLUS AGO THE STOCK WAS TRADING AT 140 AND THE WHOLE LINKS THE SEARCH BUSINESS WAS SUPPOSEDLY DEAD. STOCK WAS TRADING AT 17 TIMES EARNINGS AND NEVER SHOULD HAVE BEEN AT 17. THE STOCK WENT UP 180% OVER THE LAST 15 MONTHS AND THE PE WENT NORTH OF 30 SO WE'RE BACK AT A RESET IN THE MID 20S WHERE IT SHOULD BE MEANWHILE THEIR A.I. BUSINESS STILL LOOKS VERY GOOD AND I THINK THEIR CHIP BUSINESS, THEIR TPU PIECE IS ACTUALLY A COMPETITIVE ADVANTAGE FOR THEM. CHARLES: TEXAS INSTRUMENTS MADE A HUGE MOVE BUT ITS BEEN SIDEWAYS AND THEY REPORT AS WELL AND IT COULD BE SOMETHING OF A PROXY FOR THE SEMICONDUCTORS OVERALL. HOW ARE YOU FEELING? >> YEAH, I THINK THEY REPORT SOME GOOD NUMBERS AND THIS IS THE OPPOSITE STORY OF THE MAG7 WHERE THEIR FREE CASH FLOW IS ACTUALLY INFLECTING UP. THEY JUST GOT DONE WITH THE BIG INVESTMENT CYCLE IN TERMS OF BUILDING OUT PLANTS, CHIPS, SO WE'RE SEEING FREE CASH FLOW GOING UP AND I THINK IT'S A GREAT BUSINESS TO OWN LONG-TERM AND PAYS A NICE DIVIDEND AND GROWING WELL. CHARLES: A GOO