What’s News in Earnings: How Magnificent Can the Magnificent Seven Get?
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Hey, listeners, it's Tuesday, August 5th. I'm Spencer Jacob for The Wall Street Journal, and this is What's News in Earnings, our look at the broad themes that stood out in the latest earnings season. So earnings season continues, but six of the companies that have been on everyone's minds, the Magnificent Seven, have shown us how they did in the last quarter. And more importantly... what they're planning to do with some of those billions of dollars in cash flow. Heard on the Street writer Asa Fitch, who also co-authors the journal's new AI newsletter, is here to shed some light on their results and the capital expenditure bonanza. So Asa, if my math is correct, the four hyperscalers, that's Amazon, Meta, Microsoft, and Google, whose parent is Alphabet, that are investing the most in AI infrastructure, all of them members of the Mac 7, plan to invest more than $300 billion this fiscal year and close to $400 billion in the coming 12 months, mostly on AI stuff.
What happened to being capital light?
Those days are gone. Today, the watchword is who can spend the most money on AI? Because AI is the thing that's going to drive forward these businesses in the near future, in the long future, at least in the minds of many of the leaders of these tech companies. So you can't afford to not spend money on AI. And you can't afford to spend perhaps less than your competitor on AI. Because first of all, you have the money. These tech companies are minting money. It's not like they're sort of going to the piggy bank, borrowing tons of money, getting big into debt because they want to splurge on AI. They're getting money out of their business. They're spending that money largely on AI. So there's a bit of comfort in the ability of these tech companies to continue to spend on AI and continue to ramp up spending on AI.
It has been, nonetheless, pretty insane. If you look at the numbers, as you mentioned, these numbers are huge. Just look at the trajectory. Google last year spent $50 billion or so in capital expenditures, much of that on AI.
What is this bonus episode about and who are the hosts?
At that point, that was a large amount of money. This year, they're talking about spending $85 billion on this stuff. That's up from a previous plan of $75 billion. So it's a ton of money. And people tend to be blinded by these figures. What's another $10 billion? What's another $100 billion? This is a ton of money that's being thrown at AI because these companies believe it's just an indispensable, critical technology that's going to drive their futures. So the spending bonanza, it's running.
It's running. Yeah, they definitely did not seem shy. Well, only one of the Mach 7 is yet to report, which is NVIDIA, and it's the prime beneficiary of this arms race, selling the chips that they all really need. I mean, they're not the only one, but that they all need to power these data centers and run these models. Is it odd that... The first company to cross the $4 trillion mark, very much the sort of the dean right now of the Mag7, is the arms dealer here. And the others are shoveling money into its coffers.
I would say it's not necessarily odd. If you look at past tech transitions where we've seen a Russian investment, most notably, of course, prior to the dot-com bubble crashing situation. It has been the picks and shovels companies that have garnered the biggest valuations. At one point, Cisco was the largest company in the world for a very brief moment, not like NVIDIA in this run up. But if you look at historically, it's quite typical for the providers of the basic hardware and technology during a boom to run up faster.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–2:35
2
What is this bonus episode about and who are the hosts?
2:35–5:15
3
How big are the Magnificent Seven’s AI capital expenditures this year?
5:15–7:20
4
Why are hyperscalers abandoning 'capital-light' strategies for AI spending?
7:20–9:57
Speakers
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