Alphabet Beats on Cloud Revenue, Posts Strong Gemini Usage

[00:00:00]The way that I look at it, you know, we we looked at the back backlog. Mandep explained Gemini and the trajectory of the cloud business. Search is where the slight miss is. And so I guess the other way of looking at it is that there's a concern out there that the core search business gets more impacted by the behavior of using a chatbot in lie of the search engine. And so it's a slight miss, right? That's not evidence of that. Again, a very high bar quarter for Alphabet. I just can't get over the cloud growth. Like Mandy, like save me a bit. Like cloud growth 82%. It's pretty good like relative to what you and I talked about earlier in the week.

[00:00:38]>> Yeah, look, I I think overall uh it's hard to find any fault in the print.

[00:00:44]It's just, you know, because everyone is expecting capex to go up to 300 billion.

[00:00:49]I mean, look, uh believe it or not, this company will have negative free cash flow next year. So from that perspective you have >> wild >> why why because of capex investment >> uh right now they are probably uh you know uh 10 to 15 billion free cash flow for this year next year if it goes to 300 billion there's no way they're going to be positive free cash flow. So from that perspective, despite that 24% topline growth, we're talking about a company that'll have negative free cash flow at their scale. And that's where, you know, you want to see all these businesses really doing well. Right now it's cloud that's carrying all the weight, but you want to see that to Ed's point and search and you know, YouTube and other businesses and you're not seeing that kind of lift.

[00:01:36]>> Ed, you're laughing. Why? At the amount.

[00:01:38]No, no. I I I I I take it super seriously, but like remember when Oracle flipped to negative free cash flow for the first time since the '9s? The markets melted down.

[00:01:47]>> Yeah.

[00:01:48]>> When Amazon goes to negative free cash flow.

[00:01:52]>> So what? So to our audio listeners, I shrugged my shoulders and made a funny face. [laughter] But like you know the the the interpretation of Mandep's analysis and the research that BI's done on this, the market's very sanguin about that. They want to see capital expenditure high. They also want to see topline growth directly evidenced as a result of the capex. But on the cash flow thing like everyone seems pretty calm about that.

[00:02:15]>> Mandy, when's the payoff on this spend?

[00:02:18]>> Is it already happening?

[00:02:19]>> It's happening in a big way with the cloud business. I mean, when have you seen you know a company get to hundred billion dollar uh new business line in a matter of you know 3 4 years. So they are seeing that in the cloud business and it's a great investment. It's just uh I think with Alphabet Search is always the cash cow that funds everything and [snorts] even though the topline growth uh to my mind 17% isn't bad uh in terms of topline growth, it's just I I think the backlog number combined with where search would be 2 3 years from now. That's where you start to get a little worried. But you know maybe they come out in the call and say Gemini 950 million users saw engagement growth of X%. And then suddenly everyone will be okay but you really want to see Gemini delays not carry forward.

[00:03:14]Remember there they have seen a delay in their Gemini Pro 3.5 release. Now all that is adding to the anxiety is Alphabet really falling behind when it comes to the frontier model race. Yes, they're doing very well on the cloud side, but what is it that will prevent search from really uh going down or you know the uh company falling behind in the frontier model race?

[00:03:36]>> It's interesting. You have to spend, right, to build out some of these these businesses in a big time.