‘Expenses are growing FASTER than revenue’: Needham's Laura Martin

>> WE NEED YOU TODAY. THANKS FOR BEING HERE. ALL EYES ON ALPHABET. I THINK THE COMPANY DELIVERED, YOUR MAIN KEY THINGS, WHAT STANDS OUT IS THE CLOUD BECAUSE THAT'S HOW WE JUDGE RETURN ON INVESTMENT IN LOOKING FOR 63%. 82% GROWTH BUT MOREOVER AND THIS MIGHT BE EVEN MORE IMPORTANT, CLOUD OPERATION MARGINS, 35% 6%, THEY WERE JUST 21% A YEAR AGO. THERE'S A LOT TO BACK AND THAT'S WHY THE STOCK IS GETTING HAMMERED. ONE OF THE BEST MANAGING DIRECTOR, LAURA MARTIN, I KNOW YOU'RE MAINTAINING YOUOUR BUY RECOMMENDATION, FOR $50 TARGET SO WALK US THROUGH THIS PARTICULARLY FOR PEOPLE HOLDING THE STOCK AS IT CONTINUES TO GET HAMMERED. >> SURE. I THINK WHAT WALL STREET IS SAYING TO ALPHABET IS 82% GROWTH IN CLOUD IS GREAT, 24% TOTAL GROWTH LOOK GREAT, YOU'RE SPENDING TOO MUCH MONEY NOT TELLING US THE INCREMENTAL RETURN ON CAPITAL. THE PRICE LEVEL MARGIN PRESSURE, NOT AN CROWD BUT COSTS ARE GOING AND EXPENSES ARE GROWING FASTER THAN REVENUE AND THEY SAID THEY WILL SIGN UP THREE COMMITMENTS TO THIRD PARTIES BECAUSE THEY CAN'T KEEP UP WITH DEMAND SO THEY WILL GO ON A CONTINGENT LIABILITY, ANOTHER FORM OF OBLIGATION AND THEY RAISE UP NEXT BUDGET BY 15 BILLION FROM 90 DAYS AGO SO ROUND NUMBERS, 200 BILLLLION OF UP NEXT REVENUE IS GROWING NOT FAST ENOUGH TO HAVE POSITIVE RETURN ON CAPITAL IF YOU RAISE UP NEXT 15 BILLION EVERY 90 DAYS AND I THINK THAT'S WHAT THE MARKET IS SAYING THE SHARES DOWN VERY STRONG FUNDAMENTAL PERFORMANCE. >> FREE CASH FLOW, NEGATIVE FOR THE THIRD PARTIES AND OTHER FOLKS AND THAT'S A GOOD THING FOR GOOGLE ANOTHER QUESTION, SOME DOUBT. ANOTHER AREA, GEMINI, A LOT OF GRIEF AND MAJOR TALENT IS LEFT, 3.5 DELAYED THREE TIMES, YET THEY SHOCKED US, 950 MILLION USERS ON THIS, I HAVE TO TELL YOU, LISTENING TO A CALL AT DEEP-SEA HE THINKS THEY WILL BE A WINNER. OPEN AI AND GOOGLE HE THINKS WILL WIN THE AI RACE. >> PART OF WHAT I AGREE WITH, I DON'T THINK THERE'S ROOM FOR ALL OF THEM FUNDED CITED THINK THERE WILL BE TWO OR THREE WINNERS, I THINK IT IS A SURPRISE THAT GOOGLE IS INTRODUCING LOW-END MODELS WHEN IT'S CLEAR THE CHINESE MODEL SHOULD DOMINATE ON CROSS AND GOOGLE SHOULD STICK TO HIGH-END, HIGH-SECURITY MODELS, IT SEEMS TO ME, BUT I DO THINK GOOGLE PROBABLY WITH DATAFLOW FROM YOUTUBE, WAYMO, SEARCH PROBABLY HAS BEST IN CLASS ABILITY TO UPDATE AND THE BIGGEST LLM AND YOU ARE RIGHT ABOUT TURNOVER BUT THEY ARE THE INCUMBENT, THEY EMBEDDED THIS TECHNOLOGY SO OF COURSE THEY ARE THE NET LOSER OF TIME BECAUSE THAT'S WHERE TALENT STARTED IN A SENSE. >> I WANT TO SWITCH GEARS, YOU HAVE A HOLD ON IT, AND THEY LAUNCHED A NEW AD CAMPAIGN, WE WILL PUT A SNIPPET OF IT FOR A SECOND. >> BRACE YOURSELF. >> SOME WILL HAVE YOU BELIEVE AI WILL MAKE US LESS CONNECTED AND LEAVE US BEHIND. WE COULDN'T DISAGREE MORE. CALL US OPTIMISTS AND DREAMERS, JUST AS WE HAVE ALWAYS DONE, WE ARE BETTING ON PEOPLE. >> AM I GOING TO WAKE UP TOMORROW AND FIND OUT BECAUSE THE AD YOU LOOK AT YOUR RATING TO APPLY? [LAUGHTER] >> NO. I DON'T UNDERSTAND WHO THAT COMMERCIAL IS TARGETED TO PROHIBIT CONSUMERS, WALL STREET HATES EMPLOYEES, WE WANT THESE COMPANIES TO USE AI TO REPLACE FTE SO IT'S A BAD ADD WALL STREET. >> YOU WANT YOUR HOLD ON APPLE, APPLE MADE THE SURPRISING MOVE, IS IT TIME TO RECONSIDER? >> APPLE IS THE DEFENSIVE PLAY IF YOU THINK GENERATIVE AI IS OVERHYPED OR HYPER SCALES WILL NOT CUT BACK AND BE MORE DISCIPLINED SO THERE ARE TWO SIDES TO EVERY MARKET AND ARE PLENTY OF PEOPLE WHO JUST THINK THERE'S TOO MUCH HYPE AROUND THE AI CRAZE AND THEY ARE HIDING IN APPLE, NICE BIG LIQUID NAME, HUGE FREE FLOW, VERY STRONG CULTURAL RATINGS, POSITIVE CULTURAL RATINGS IN THE NEW CEO WHICH IS INTERESTING. FOR THE FIRST TIME IN 15 YEARS SO ALL THAT MAKES APPLE THE ONE TO WATCH ALL OF IN MY OPINION, THE REASON WE HAVE A WHOLE IS THE STRATEGY OF NOT ADOPTING AI AND JUST HOPING YOU CAN REMAIN A GATEKEEPER TO CONSUMERS, I DON'T THINK THAT'S GOING TO WORK, BUT THEY SEEM TO THINK ABOUT. >> THEY BEEN ABLE TO GET AWAY WITH IT FOR A LONG TIME AND SOME QUESTIONS ABOUT THEM HAVING TO BUY A CHIP C COMPANY BECAUSE IN-HOUSE EFFORTS HAVE BEEN SHORT. THIRTY QUESTIONS BUT I HAVE TO ASK ABOUT AMAZON BECAUSE YOU DO HAVE A BIONIC, WHAT YOU ANTICIPATE FOR NEXT WEEK? >> VERY WORRIED ABOUT THE UP NEXT NUMBER. SYSTOLE REPORTED AFTER GOOGLE AND RAISED UP NEXT MORE THAN GOOGLE WHICH MEANS THAT WILL NOT BE GOOD FOR STOCK BECAUSE IT'S ALREADY AT 200 BILLION SO IT WOULD GO ABOVE TO TEN, 220 SO I DON'T LIKE THE MONEY THEY ARE SPENDING AND DELIVERY BUSINESS SO THERE'S A LOT OF CAPITAL HAVING NOTHING TO DO WITH AI IN MY OPINION, STRATEGY IS WHAT YOU SAY NO TO. IF AI IS A BIG SPENDING MONEY, STOP SPENDING ON INVESTING IN LONG-TERM ASSETS WHEN THE DISCOUNT RATE IS GOING THROUGH THE ROOF BECAUSE AMAZON CORE BUSINESS MIGHT GET THIS INTERMEDIATED BY THESE AGENTS. >> THANK YOU SO MUCH AND HOPE YOU CAN GET T YOU BACK ON REAL SOON, THERE WILL BE A LOT MORE NEWS.