It’s Not an AI Bubble. It’s a Race.

Editor’s Note: If you missed Larry Benedict’s briefing last night, then you might be unaware that a major market indicator just triggered. Each time over the past 40 years that’s happened before… a recession was in the wings.

Larry’s here to make sure you’re not caught off guard… because the easy market gains of the past year may be vanishing. He believes we could have a significant period of volatility ahead. And that means potentially years of subpar returns for your portfolio…

He’s prepared a playbook to help you protect yourself with his favorite strategy… and even thrive amid the chaotic transition. Larry doesn’t want anyone to miss out, so he’s making a replay of last night’s event available for a short window. Watch it here before it goes offline.

It’s all in the numbers.

And just because you may not see it doesn’t mean it’s not there.

The reality is… it is everywhere.

The “it,” of course, is artificial intelligence.

We’re all using it. And we don’t need to own a Tesla to experience it.

Some of us may have noticed a change in the Google search engine.

Recently, when we type something into a search bar, the results come back with an “AI Overview” at the top of the search results.

So, anyone who uses a search engine – or speaks to Google Assistant, Alexa, or Siri – is using AI technology daily.

Did you know?

A Stunning Earnings Week

This has been a massive week for the Magnificent 7 stocks, five of which report earnings this week.

Alphabet (GOOG), Microsoft (MSFT), and Meta Platforms (META) have already reported. And Apple (AAPL) and Amazon (AMZN) will report after market close today.

But we don’t need to wait for the release. The numbers will be stunning.

All of these businesses are on fire. They have such incredible scale, and they have been aggressively adopting artificial intelligence (AI). AI is not only a wild enhancement to productivity but a radical improvement in product performance.

Like I said, it’s all in the numbers…

Alphabet on October 29:

• Consolidated Alphabet revenues in Q3 2024 increased 15%, or 16% in constant currency, year over year… to $88.3 billion, reflecting strong momentum across the business.
• Google Services revenues increased 13% to $76.5 billion, led by strength across Google Search & other, Google subscriptions, platforms, and devices, and YouTube ads.
• Google Cloud revenues increased 35% to $11.4 billion, led by accelerated growth in Google Cloud Platform (GCP) across AI Infrastructure, Generative AI Solutions, and core GCP products.
• Total operating income increased 34% and operating margin percent expanded by 4.5 percentage points to 32%.
• Net income increased 34% and EPS increased 37% to $2.12.

Meta Platforms on October 30:

• Family daily active people (DAP) – DAP was 3.29 billion on average for September 2024, an increase of 5% year-over-year.
• Ad impressions – Ad impressions delivered across our Family of Apps increased by 7% year-over-year.
• Average price per ad – Average price per ad increased by 11% year-over-year.
• Revenue – Total revenue was $40.59 billion, an increase of 19% year-over-year. Revenue on a constant currency basis would have increased 20% year-over-year.
• Costs and expenses – Total costs and expenses were $23.24 billion, an increase of 14% year-over-year.
• Capital expenditures – Capital expenditures, including principal payments on finance leases, were $9.20 billion.
• Capital return program – Share repurchases were $8.86 billion of our Class A common stock and total dividend and dividend equivalent payments were $1.26 billion.
• Cash, cash equivalents, and marketable securities – Cash, cash equivalents, and marketable securities were $70.90 billion as of September 30, 2024. Free cash flow was $15.52 billion.
• Long-term debt – Long-term debt was $28.82 billion as of September 30, 2024.
• Headcount – Headcount was 72,404 as of September 30, 2024, an increase of 9% year-over-year.

Microsoft on October 30:

• Revenue was $65.6 billion and increased 16%.
• Operating income was $30.6 billion and increased 14%.
• Net income was $24.7 billion and increased 11% (up 10% in constant currency).
• Diluted earnings per share was $3.30 and increased 10%.
• Revenue in Productivity and Business Processes was $28.3 billion and increased 12% (up 13% in constant currency).
• Revenue in Intelligent Cloud was $24.1 billion and increased 20% (up 21% in constant currency).
• Revenue in More Personal Computing was $13.2 billion and increased 17%.
• Xbox content and services revenue increased 61% driven by 53 points of net impact from the Activision acquisition.
• Search and news advertising revenue excluding traffic acquisition costs increased 18% (up 19% in constant currency).

The above bullet points are all directly from each respective company’s earnings press release. Alphabet popped initially 6.6% on the news and is quickly giving back its gains, and Meta and Microsoft share prices are falling on the back of the earnings announcement.

And it doesn’t mean a thing at all. The results were absolutely stunning. These businesses are humming. No need to be worried.

After all, who cares if one or two metrics were more or less than expected by someone with a fancy spreadsheet on Wall Street?

These remarkable businesses aren’t worth any less than they were two days ago. The executive teams know that, of course – they don’t care.

Better yet, they all know exactly where they are going. They know exactly where to spend to build an even more impressive business.

After all, it’s all in the numbers…

We “Require Serious Infrastructure”

Google’s cloud services revenues surged by 35% year over year, driven by incredible growth in the use of its AI infrastructure and generative AI technologies.

Google spent $13 billion on capital expenditures in the quarter, the majority of which was spent on AI-related projects.

Meta actually increased its guidance for capital expenditures for 2024 to a range of $38 billion to $40 billion. But better than that was the forward guidance that Meta plans to grow its capex in 2025.

It couldn’t have been clearer: “We continue to expect significant capital expenditures growth in 2025.” There was no ambiguity about where the money will be spent. Meta CEO Zuckerberg was direct: “Our AI investments continue to require serious infrastructure.”

Microsoft was no different. It spent $20 billion in the quarter on capex, almost entirely on AI-related projects. That’s about double what it spent in the same quarter last year.

Microsoft CEO Nadella summed it up, “AI-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process.”

He went further to say, ”We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage.”

A recent forecast from Bloomberg expects Amazon, Microsoft, Alphabet, Oracle, Meta, and Apple to spend $200 billion of capex on AI in 2025. That’s $200 billion across just six tech companies. All in just a single year.

This isn’t a bubble. It’s a race.

And it will transform the entire global economy over the next several years.

It’s all in the numbers.

Regards,

Jeff