Chapter 1: What is the main topic discussed in this episode?
Today's number, five. That is the official Rotten Tomatoes score of the new Melania movie, making it one of the worst movies of the decade. Critics have called it a shameless infomercial, they've called it two hours of endless hell, and they've even compared it to Nazi propaganda. However, they all agree it was better than the Emoji movie. Welcome to Property Markets. I'm Ed Elson.
It is February 5th. Let's check in on yesterday's market vitals. The tech selloff dragged on for a second day, pulling the NASDAQ down 1.5%. The S&P also declined, though the Dow managed to climb. Uber fell 5% after reporting softer than expected guidance and naming a new CFO. AMD was among the worst performers, suffering its steepest drop in seven years after disappointing earnings.
And finally, Bitcoin also carried on its slide towards $72,000. Okay, what else is happening? Google's fourth quarter earnings beat expectations with annual revenue topping $400 billion for the first time ever. It was also the company's second consecutive quarter of more than $100 billion in revenue. That was largely driven by strong growth in its services and cloud divisions.
Its cloud revenue grew 48% year over year. However, the company spooked investors with plans to spend $175 to $185 billion this year. That is at least 55 billion more than forecasted. That would nearly double its capex from 2025. The stock initially fell as much as 7% after hours, but it quickly recovered.
Okay, here to help us break down these earnings, we're speaking with Scott Devitt, Managing Director of Equity Research at Wedbush Security. Scott, good to see you again. Hey, Ed, how are you? Doing very well. We want to dig into these earnings here. Beat expectations, $400 billion in annual revenue, which is mind-blowing at this point.
Let's just start with your initial reactions to these earnings.
The growth is very strong. Search was up 17%. So the search business alone, that's almost $300 billion of revenue. And that business is accelerating. So the infusion of AI overviews into the search results has definitely benefited the platform. In addition to that, The cloud business grew almost 50% in the quarter. Expectations were 38% growth. It did 48% growth.
So that's on the positive side, and the growth is outstanding. With that, the company's going to be spending like crazy next year on CapEx, or this year, I should say. 175, 185 billion of CapEx, you know, that they effectively almost doubled CapEx in 25. They're almost doubling it again. So it's front footed growth.
But, you know, the market has to digest periods where companies are spending so aggressively. ahead of revenue and operating profit. And I think you're seeing some digestion. You've seen it in meta. You're seeing it in alphabet. But these are the right investments to be made. And when we get to the other side of the spend, I think there's going to be quite nice returns for these companies.
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Chapter 2: What were Google's Q4 earnings results and implications?
CapEx announcement recently. This one from Google is probably the largest we've seen of any of the hyperscalers, at least this quarter. What do investors think about these kinds of numbers at this point? Is this something that makes them feel excited about AI, or is this like, uh-oh, we're in bubble territory?
Well, I'll tell you, for the infrastructure companies, it definitely validates the numbers that have been thrown around by companies like NVIDIA and otherwise in terms of that the spend is real. That's one point. I think stock performance tends to be best in harvest mode.
So on the back of an investment cycle, when an investor can see the returns and the associated growth that comes in the back of an investment cycle, tends to be when stock performance is best. You have this 180 billion number by alphabet. You have 125, I think, by meta. Amazon's current estimate is 155. For 26, I wouldn't be surprised at all if it's closer to where alphabet is.
And so we're ending this period where... you know, 2022 was kind of the year of discipline and that continued in 24. You started to lose it in 25 and now we're getting back into investment mode again. And so with that, I think, you know, expectations have to be a little bit more tempered that returns will still be decent, but you have to climb that hill.
And then, you know, the harvest period on this spend is probably 27, 28. So you're looking at like a three-year horizon on these stocks.
You mentioned earlier that what's happening in software, software stocks just getting absolutely killed right now. You know, everything from Salesforce to, let's see, ServiceNow. I mean, all of the enterprise SaaS companies, their multiples are kind of collapsing right now. largely because of AI, but it's not totally clear what's happening.
Can you just tell us what's happening in software right now and why these multiples are falling?
So investors are concerned about a few things. One is that the software companies are predominantly seat-licensed businesses. So to the extent that there's fewer seats because there's less labor required as companies incorporate AI, then that's not good for the business models.
In addition to that, though, it's that AI itself with some of the features that, that Claude, um, which is Anthropix, you know, product has been launching displaced the software companies themselves. I think that, um, I think there's some justification to it, you know, for why the multiples have come down. But I think what you're going to find is, you know, this industry is changing, evolving.
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Chapter 3: How did Scott Devitt react to Google's increased capital expenditures?
Thanks so much for having me. Appreciate it.
So Eli Lilly and Novo Nordisk both report Eli Lilly closes up 10%. Novo Nordisk crashes down 18%. Take us through these earnings. Why is there such a difference here?
You've got one company growing very meaningfully in Eli Lilly and really seeming to not be losing any momentum. If anything, the business is getting stronger. And on the other hand, you've got Novo Nordisk that, for so many reasons, is seeing revenue degradation already in just the third year where these obesity treatments have been on the market and FDA approved.
So I think they're just going down two
very very distinct different paths one um you know in a very positive way and the other not what is the reason behind this revenue degradation as you put it at novo nordisk like what's the issue they've got the hot product um why aren't things working
And I think the biggest piece that I can really identify is that on the injectable side, which is obviously the lion's share of this market until the orals really get going, is only about 30% to 40%, depending on the day, right? So already they're seeing their market share slip to about a third of the market. And then I think the unfortunate thing for them is that they've got two things going on.
One, they've got this conversion to the oral therapy, which is very significant in terms of volume.
but at a fraction of the price right the introductory price for this market is only about 150 a month that's down from you know three four five hundred um and then the second thing is that semi-glutide is already on the ira list so they're seeing price degradation and they're seeing market share challenges both are going on simultaneously i mean it's just a recipe for a very challenging near term um you know the hope here is that you know the pipeline and and some of the things that they're doing strategically will will get them
to a better place, but it's going to take a while.
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