Cloud Growth and Future Outlook

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Results may vary, medications prescribed only if clinically appropriate based on a consultation with a clinician. evil then that building is helded Welcome to Profty Markets. I'm Ed Elson. It is july twenty third. Let's check in on yesterday's market vitals The S andP five hundred and the NSdDQ declined. The Dao was flat. Brent crude climbed above ninety five dollars per barrel for the first time in nearly six weeks, as both the US and Iran escalated their attacks, the yield on tenure treasuries increased And finally, Google and Tesla shares fell after both companies' reported earnings, we will get into those reports later What else is happening big AI spenders are increasingly turning to debt. and a lot of it turns out to be hidden. A Nic Asia investigation found that five tech giants, Alphabet, Microsoft, Amazon, Meta, and Oracle are carrying roughly one point six five trillion dollars in debt that doesn't show up on their balance sheets. That's more than the one point three five trillion dollars they actually report. Meaning the debt we can't see is now bigger than the debt we can Meta's off balance sheet debt is roughly three times its reported debt And Oracles has ballooned about thirtyfold in four years. It's all legal, but it raises one big question. what happens if AI demand isn't as strong as investors are betting Joining us to discuss this question. We're speaking with Ed Zitran, author of the Where's Y your Ed at newewsletter and host of the betteret offline podcast, Ed. Thank you for joining us. I just want to give you some context. Yesterday I was talking about Oracle on this show. And I was talking about how they're increasingly relying on debt to finance their data centers and how it's becoming kind of borderline and manageable, and that's why their credit rating is getting downgraded and their borrowing costs are exploding. kind of being sent into this downward spiral. Up until this point though, it has been my understanding that the debt in the AI ecosystem been relatively contained to a handful of companies like Oracle, but that it hadn't infected the bigger names, which is why I was so alarmed to see this reporting from Nicke which is this one point seven trillion dollars of hidden debt that we haven't been seeing, that we haven't been looking at You've just written a huge piece on this. You investigated these numbers. You did a sweeping analysis of all of this. What do we know about debt in AI And how is it? that so much of it appears to be hidden. So there are several factors here. with the hyperscalers, the reason they're able to do that is because they've found this interesting accounting treatment that Ernston Young claim is a red flag in Metta's case, where when you build a data center, it's not like you as the company say, I'm going to buy all the stuff. I'm going to get the debt for this and here we go. They make a special purpose vehicle or a variable interest entity which is basically an SPV where you don't own as much. So for example, with hyperion I think investors like Pimco and Blue Owl own eighty percent of it and Ma only owns twenty percent of it. Despite Meta being the only client The person that's going to fill it full of GPUs as well, I think, think they're moving some across their assets, despite them being the obvious despite meta announcing it And saying this is our data center because they don't have full ownership of it. It's not counted as something they put on their balance sheet. They will have it, I think within operating leases when it starts paying. But the thing is, this is the entire AI data center industry. Every one of them are these SPVs that people pull money into. the SPV owns the debt, the SPV often owns a lot of the risk th through non recourse loans, which means that technically you have to go after the assets of the SPV before you go after the company. But nevertheless, these things own the risk, they own the GPU's, they Pay investors not out of anything other than the revenues from the data centers, which leads to the important point of what happens if the revenue for the data center isn't there? How do investors get made whole? And the answer is they do not only reason this is not considered a problem yet is it hasn't actually happened. like the The data centers have not been built at the scale that would have to happen for the revenue not to flow in what actually is an SPV? and this is important because you say that these data center SPVs are the AI bubbles equivalent of CDOs, which of course were the financial instruments that basically sparked the G financial crisis, you say that that is our equivalent today. So what actually is an SPV and why are they so popular? So to be clear, a CDO is slightly different, it's holding mortgage bonds and stuff, but they are the same kind of financial instrument that will cause genuine harm to the markets of the world. So an SPV is basically a company It's a company. it has people people that technically are on the board of directors can do that, but really it's just a holding entity for money and stuff And so when they build a data center, that SPV ra raises the debt, that SPV holds the debt, that SPV buys the GPUs, it builds the data center. And when the money flows into it, the SPV is the one that pays out to contractors, that pays the OpeEx costs. And there's a cash waterfall even where it goes, paying OPEx, paying investors and then paying paying the people that own it in theory if there's more money than there should be. That is not going to happen. but nevertheless These things are so dangerous because they are being sold as stable infrastructure like commercial real estate or residentials and just saying, o, it's physical land, it's good, it's great The problem is and the critical difference is that data centers are nothing like a regular mortgage and they're nothing like commercial real estate. These are complex financial operations, both in the construction and the ongoing costs. and then there's the important thing of You need revenue to actually get paid out of them. And because they're all project financing, which just means they exist to finance a project There is no other money for them to pay people out unless Like the company on the other end, a Core weave an oracle or what have you isn't on the hook for those payments. Basically the client is. and if the client is say, I don't know, open AI. and can't afford to pay it than investors who have invested in these SPVs Well, that kind of shit out of luck. And the problem is when I say investors, I mean anyyone who's involved in private credit right now. Private credit is well funded as I'm sure we'll get into by pensions, retirement funds, insurance funds, teachers pensions, cops pensions, all this different stuff. We are all involved in private credit whether we want to or not I just want to read you a quote from Amanda Yacon of Bloomberg, and you quoted this in your piece She made this comparison to Enron. She said, quote, Enron exploited US accounting rules to hide from investors and lenders hundreds of millions in debt it had bundled into off balance sheet entities, obligations that contributed to one of the biggest corporate collapses in US history And what you are describing right now is that there is a trend among The big tech companies, Meta, Microsoft, Amazon, Google, Oracle They are creating these shell entities, these SPVs seemingly to hide literally hundreds of billions of dollars of debt that they are issuing in order to finance their data centers. In other words, they're showing us in their reporting and in their earnings like here's here's everything things we've built But then they're hiding all of the borrowing that they took on to build all those things that they're kind of bragging about in their reporting does seem to be a very, very similar. Link Um I guess Could you expand on that on how this has come to be and potentially how this might unravel. So I want to be clear that other than Oracle, I don't think these companies die But I will say it's kind of hard that Nic piece, it wasn't clear if they were saying there was three hundred billion or one point six trillion dollars of hidden debt. It was a very weirdly written piece, but let's say it's a trillion or so of off balance sheet debt. That means that there's a trillion dollars in loans that we just don't we actually cannot really quantify outside of media reporting. But I must be clear, it's not just hyperscalers doing it. It's Corweave, it's Iron, it's Nebius, it's Nvidia in some cases. It's whoever is building a data center is using these shell corporations as a me of office caseing ownership and also Ofuscating risk as in basasically handing off the risk to investors and even though there are some that are recourse loans, even if there's up the chain, you could eventually sue the company At that point, you would have sold off all the GPUs so you'd be screwed either way. But the larger point is, yeah, this is a corporate scandal. This is a huge scandal. This should be front page news everywhere. This should be a shareholder riot Because we live as you put it, well my show, in this cult of worshiping the wealthy, we just kind of put it to the side. significant risk to these companies though. This is a realm like Google, we're talking just as Google's earnings came out. They narrowly missed on search revenue. The other businesses are slowing down. It's happening across the board So their businesses are going to slow down just as these massive debts creep up Un let's say they have ways of getting out of these things, the investors will still be screwed The investors involved will still be screwed And if they cancel these projects, I imagine they'll pay off investors to a point, but anyone involved is going to take a loss. And then this spreads out like these are this is the good news. The fact that the hyperskeattus have these, these are the good SPVs, theseese are the ones that I think might survive. The problem is every single data center. is through an SPV everyvery single investor who's invested in a data center has invested not in the data center itself, but in the potential revenue it brings in problem there. is that is dependent on there being fifteen or more times the AI compute demand than currently exists. It It's genuinely terrifying when you start quantifying it and people are way too about this stuff and they say, o, it's not as bad. Oh, it's not as bad as the great financial crisis It's still a great financial crisis that this happens. It's still horrifying and it's everywhere You write, quote, muchuch like a subprime mortgage, AI data centered debt is being poorly underwritten, virtually unconllateralized and issued to projects that have extremely low likelihoods of repayment based on flimsy information and hype driven mania, end quote sounds like a provocative statement, but I actually think it's pretty much factual and correct I think one thing that that isn't in that statement When we make the comparison with the great financial crisis is the fact that A lot of that poorly underwritten debt that virtually uncollateralized debt was obfuscated uh, I'm hidden away to the point where Ratings agencies and investors and traders didn't even know what was happening becausecause it had been so well hidden in the markets. it had been so well kind of complexified I guess my question to you Do you think that this is the same situation where investors ratings agencies. I mean, we know that S and P just downrated Oracles debt. So clearly they have some semblance of an understanding of what might be going wrong here, but is it your view that this is not being priced in that investors literally don't know what is happening in terms of the debt that is being issued among many of these companies. Let me tell you the tale of private credit. So private credit in the last few years has gone on a tear merging with and acquiring insurance companies and retirement funds. Apollo bought a theme while they merged with them. lue Alb Cut there I forget who the others are but nevertheless, Blackstone's infrastructure fund is funded by retirement funds. The problem is is a lot of the SPVs are funded by private credit. private part is the lethal part. S and P doesn't rate private debt. No one does other than the private credit fund. So there was a story in the information a few months ago that said that Blue O decided to invest I think up to ten billion dollars in Stargate Abelene after ten minutes How much due diligence do you think we can get done in ten minutes? Probably not very much This is standard for the SPVs So Wh people will say, oh, well the ratings agencies failed here, actually no, the SEC failed here. the I like the insanity of private credit, which is basically a multirillion dollar shadow banking system is what's propping this up For the most part Debt raised for these SPVs is coming from private credit. You look at Corewaes, it's coming from private credit. When it comes from the banks, the banks themselves SMBC and MUFJ out of Japan like they're just funneling the debt straight in. So much of this is coming through institutional investors that are funneling money through private credit that the ratings agencies aren't even involved. And the ratings agencies don't, The only reason they did it with Oracle is Oracle has predominantly raised its money via bonds except for the fact that a lot of their private projects are SPVs and the SPV raises the debt And it's this situation where in theory, like I think the Michigan data center and they're building is a recourse loan. so you can go directly after Oracle But that's the thing. E in that situation, there are these legal barriers that if every beta center is exploding, will make it hard to litigate at scale or at least hard to pull down who's actually responsible And we don't like if you are anything touching an athene or a couvet or any other insurance company, it is worth checking where the money's going. I think the Lions actually invested in a Cyrus One bond And the thing is, these bonds get rated someomehow they get rated as junk, but because insurance companies are now effectively run by private credit funds, they don't give a crap It's like ye, sure because of this giant lie And this giant lie is that data centers are the equivalent of investing in power plants and factories, that they're AI factories. when in fact, what you're investing in is a very large like town sized building or a campus that is full of depreciating GPUs for an industry that has not proven it has the demand. And I mean my estimate for actual AI computer one is about one hundred hundred twenty billion a year. I did the math and it's something like if they build all one hundred and thirty gigawatts of IT loads so the actual operational GPUs that they say is in planning based on sighteline climate We will need one point six eight trillion dollars of annual compute revenue. just to pay for them all and they'll have to pay consistently because if you stop paying consistently, the loan covenants with the SPVs break. And the crazy part about this is the global software industry is less than eight hundred billion dollars. So we're just gonna magic up another software industry. And to be clear, what I am saying sounds radical. I think you kind of said this already. It sounds like a o scary thing, Oh, it's alonest. This is just Very basic maths. This is sightline climates that one hundred and ninety gigawatts of capacity was being was in planning or under construction, PUE of one point three five, which is just the energy efficiency, one hundred thirty gigawatts twelve million dollars a megawatt. It really is a simple mass that anyone could do. And the thing is, even if I even if it's just half of that We still don't have enough demand And so we're in this weird situation where this risk is now spread everywhere to the point that because it's private, we actually do not know how far And it's within the insurance companies. It's different to how AIG collapsed. It's just smaller It's smaller a little bits, but the other problem is is that AI data centers are so expensive cost five hundred million minimum, probably several billion. So instead of having millions of or hundreds of thousands of subprime mortgages that collapse in a kind of slow boil over time, it's going to be a five hundred million, a six billion, a two billion, a one billion collapses. And each time one of these happens, that's a massive markdown with a private credit fund, but also a bunch of investors who have lost money and have no recourse beyond, I don't know, selling all the GPU's in a market that will become saturated with them. It's the recourse point that is getting us into such dangerous territory here. I mean it's one thing to make a to sell equity on a speculative bet about the future in which case, you know, the People know what they're buying into, we know what the risks are. It's another thing to finance an extremely speculative u business through debt. and then to hide that debt. because I mean, if this doesn't work out We're not just talking about equity going down here. We're talking about bankruptcies, we're talking about defaults. There's also one other problem, which is the reason that ins insurance and retirement funds invest in private credit is because they need yield They need ongoing yields. So if these data centers do not pay out We have retirement funds and insurance premiums that cannot get paid And I'm sure they have some buffer. I'm sure they have other assets, but I mean, it doesn't have to be an AIG commercial pap level. collapse for this to be systemically damaging And after this, there is no more yield to be found, I guess other than treasury bonds, which are going up now, yay when they go down I don know but So it really is and what sucks is most people have no idea about this. Most people don't realize that like the California Pension Fund is invested in Blue O Like these are it's everywhere and it's not just in America. it's across the board. You've got, I think the Dutch pension funds in data centers, CDPQ, which is the Quebec pension fund. They invested I think in a call weave data center. Like this is everywhere. And I'm furious at the fact that It's so ill it's so rarely discuss, but also people are so quick to being like, o, it's not as bad. Oh it's not as bad Not as bad as still bad All right, well, we're going to have to continue this conversation another time. I'm going to have to let you go, but it is fascinating stuff and I do encourage our listeners to go read your article. It's extremely rigorous and gets at a lot of the issues that we're talking about. Ed Zitran is the author of the Where' your Ed at N newsletter and host of the Better Offline cost. Ed, always appreciate your time Thank you Thanks for having me O the break The breakdown of Tesla and Google's earnings And for even more markets insights, you can subscribe to my weekly newsletter simimply putut at simply put. propertymedia. com. Support for the show comes from Apple News pllus. Apple News Plus has everything you're into, all in one place, over five hundred publications covering the topics that matter most to you. Thousands of recipes from celebrated food publications around the world, local news from all fifty states, sports coverage from across the globe, audio stories you can take anywhere, and daily puzzles exclusive to Apple Newspllus All of it curated just for you. New subscribers try it free for one month at news. apple slash learn terms apply Excuses are easy. An epic movie night, we don't have enough snacks. Dinner party with the girls 'd have to decorate. Surprise date night? thing to wear But Amazon's prime same day delivery lets you say yes before the moment slips away Try that new popcorn maker, order those cheeky drink glasses, get that new perfume, and turn that I wish we could into an I'm so glad we did Visit ammazon d. com slash prime to find millions of items delivered fast. Same day delivery. It's on Pime. Available in select areas. Terms apply The new LinkedIn hiring proro can't undo your last hire. The human postponer. They were the master of one phrase. I'll circle back on that. But three months later, you were the one doing all their work and wondering how big that circle is But LinkedIn Hiring Pro can take the hiring load off your plate by automating the hiring busyw from the initial job post to scheduling interviews Hire write the first time with LinkedIn Hiring Pro. Post a free job today at LinkedIn d. com slash quality proroperty markets Tesla just reported earnings and Wall Street was disappointed. Ahead of earnings, Tesla had reported impressive delivery numbers for the quarter, up twenty five percent year over year gave investors the impression that Tesla's worst quarters were behind it. This time last year, the company was reporting a thirteen percent decrease in deliveries. The company's second quarter earnings told a different story. While revenue beat analyst expectations up about twenty six percent year over year, profits fell five percent over the same period. And the quarter's free cash flow came in about one point one billion dollars in the red. The stock fell more than three percent after ours and is now down roughly twenty five percent from its peak.. Here to break down Tesla's quarter. We are speaking with Karem Booster. co founder and managing partner at DVX Ventures and former vice president at both Tesla and Lyft Karim, thank you for joining us The interesting story here you got Decent delivery numbers especially compared to last year, revenue was up, but prorofits down What went wrong here on the bottom line I think what we're saying with this published results should not come as a surprise for anyone who's who's been understanding and following what's been going on with Tesla for the past I'd say eighteen to twenty four months Essentially what's been happening we've seen declining sales for several quarters in a row. but more importantly, we've seen declining market shares Even in this quarter where for the first time, in a few quarters, Tesla has been able to report increasing sales number to look at this in the context of a growing EV market where the market overall has been growing faster than the sales number that Tesla has been reporting. So that's one factor which confirms what we've been saying for the past few years, which is Tesla has a fundamental issue on the automotive side, which is Essentially the vehicle lineup, the product lineup is becoming old. It has not been able to renew it. There's been a refresh of the model Y last year, but it's still based on the same platform that was that launched almost ten years ago now with the model three and then the model Y. So there hasn't been real innovation, both from the product side and technology side that would have allowed for the company to catch up on the market share losses that they've been seeing And at the same time, continue improving the margins. It's actually been the opposite. The margins have been eroding. We're seeing it in the results that have been reported this quarter So all this comes down to the lack of innovation and new products and fundamental platform launches that we haven't seen for the past few years. and that's in the context of a competition that has been increasing with all competitors catchching up to where Tesla was even six or seven years ago and creating great products with better margins production systems than what Tesla has been able to accomplish. So all this to say, I'm not surprised by these results. It's all coming down to what we've been seeing in the past few quarters and everything is coming into place When you look at the lack of innovation and new breakthrough product, on the product lineu side The Tesla bulls will say, what about the Rbotaxi, they will say what about Optimus, which is the humanoid robot U what would you say to those people? Are you convinced buy those products and do you think that that is going to work for the company if the existing product being the car itself is deteriorating as a business. That's indeed the bet that Elon and Tesla Blls are making that there is going to be an evolution, a transformation of the company that is going to evolve from an EV car manufacturer to a robot taxi robotics company, AI driven company. So and that's a great That's a great strategy and a great vision. Now you have to look at the fundamentals of Okay, what are these products going to look like If you take Optimus, the humanoid robot, for example there's a there are a number of questions that people should ask. What is really this product? What problem is it addressing? What market does it really have Where is the demand going to come from Even assuming that you solve these questions and these problems, then there's the other question that is are you going to be able to make this product It's a brand new product, brand new supply chain, brand new design. There's no history Teslland there's no experience building such a product. There's no track record of being able to ramp a supply chain and a production system at that level the level of complexity that is required and the quality and the cost, et cetera. So when you look at these new lines of business that Tesla is that Elon is betting the future of Tesla on you look like at a dozen fundamental questions that need to be answered positively in the ability with the ability of the company to address and solve all of them So a lot of question marks in my opinion, with regards to these new lines of business that are supposed to be the next wave of growth for the company. I mean the stock is down fifteen percent yester today, it's down almost twenty five percent from its peak. But still, it's a one point four trillion dollar company. It's trading it nearly three hundred and fifty times earnings Is all of that optimism still based in expectations around the humanoid robot and the robotaxi, and if so Is it too optimistic? or people putting too much faith in this idea that all of those questions are going to be answered well by the company. So I will add one more challenge that Tesla has to overcome there is often and there estimated or that we rarely talk about. If you look at what has made Tesla successful in the past, and the same applies to SpaceX, by the way So this Fundamentally, this Elon's vision Elon's aspirational vision, the way he puts the vision into a strategy thennd to make the strategy actionable and to execute the strategy. Tesla's success came from the talent and the hard work of hundreds, thousands of highly talented people And these people used to come to Tesla and help Elon work, and I was one of them a few years ago, attracted by the magnitude of the challenge, by the boldness of the ambition, and also by the fact that some of these problems were extremely hard to solve. And that's what typically attracts talented people and ambitious people. They want to work on the hardest problems That's what so being able to attract and attract this kind of people has been fundamental in Tesla's successes in the past. exactly the same thing at SpaceX. Now the difference compared to Five years ago, eight years ago where Tesla had to solve incredible problems and challenges is that by now, most of these people are gone. They're working on other things. They're still innovating and solving hard problems, but they're doing it somewhere else, not at Tesla anymore. I know that really well because with my team, we're all ex Tesla people, we launched a company any creation platform, we launched seventeen companies in the past few years And And there are literally hundreds of these people that are now using applying their talents in other places So the question, one of the questions that I'm still asking about Tesla now is now that All these people that made the success of Tesla possible in the past that they no longer They helping Elon solve these problems. How is the company how is the company going to do that So if you look at the robot taxi business, for example, the company has to solve the autonomous driving which is the first first priority. But even if they are able to do that and catch up to the levels of service that and safety that Waymo, for example, has achieved then they have to create a business out of this. And creating a business a robot taxi, rightide helming business is something that took Lif and Uber a decade to figure out, how to position the cars. so there's always availability, how to maximize the revenue, utilization per dollar invested, all these things that Tesla is going to have to figure out So large number of questions and challenges to overcome and there's this thing about the talent pool that has made Tesla successful in the past. that has not been replaced, we all know, but the exodus and all these brilliant people that have lessy in the past few years. That's what gets me a bit concerned. And at the same time, we've seen over and over again that Elon has been able to figure out a way to overcome these issues and come up with new solutions So that's why it's hard for me to answer like one way or the other, but I'm just looking at the number of challenges that they have to solve In the end, they're at some point running out of time just because The competition is very active and progressing and moving very fast. Wayo is moving much faster and growing much faster than Tesla is at this point. So Tesla is going to have a massive catch up to do. And even on robotics, there's tens if not hundreds of companies that are actively working on it, making the competition and the space It's really hard to win it. All right. Karen Booster, co founder of management partner at DVX Ventures and former vice president at Tesla and Lft. Karein, we really appreciate your time. Thank you Thanks for having me Google just delivered another blockbuster earnings report. Revenue jumped twenty four percent year over year to nearly one hundred twenty billion dollars. That was fueled by explosive growth in cloud revenue which surged eighty two percent from a year ago, net income quadrupled to one hundred and twelve billion dollars And Gemini saw monthly active users grow to nine hundred fifty million up twenty seven percent from February Google's AI push is coming at a cost The company is spending so aggressively That free cash flow swung into negative territory for the first time ever, ending the quarter at negative five point nine billion dollars. And CapEx guidance for twenty twenty six was raised to two hundred five billion dollars up from one hundred ninety billion doars. Reported in April, the stock dropped more than four percent during the earnings call Joining us to discuss Google's earnings, we're speaking with Scott Devittt, senior research analyst at Rosenblack Securities. Scott G to see you. Thank you for joining us. This was retty good on the revenue side. notot just cloud, I would add. I mean, search revenue also. growing pretty substantially up seventeen percent. I'm always kind of amazed how that number keeps going up. but it seems like that was all overshadowed by the amount that they're spending on AI. and the negative free cash flow That seems like a big deal What do you make of it? You have the stock reactions and then you have like what's happening in the business, you know, with alphabet been such a substantial move in the stock over the past twelve to eighteen months that you know some of this is just the digestion of this reality of how good the business is doing right now. And if you look In a search business, you mentioned up seventeen percent. that business you know was thought to be left for dead. twelve, eighteen months ago because of AI. and on that base that the bit company has to be growing that seventeen percent. also be growing YouTube thirteen percent building out way most capabilities This company is like rearchchitecturing their entire business as they have this exploding cloud business that's attached to the company now as well. I mean that was up, the cloud business was up eighty two percent. So major nit, you know, I think is the fact that as you mentioned free cash flow flip negative, they're going to need more to grow the business. But when you get to the other side of this investment cycle Alphabet's going to have rebuilt the entire company and have a multi hundred billion dollar cloud business on top of it. And so when they go into harvest mode, I think the stock you know starts to show much stronger returns after it digests this kind of window of time of this kind of recovery period the last eighteen months and now the reality, you know, setting in that it's going to be expensive to build what they're doing. Just looking at you know, YouTube, search, I mean, their traditional businesses, their bread and butter, there is no question that they continue to excel Um just fromom my personal perspective, it does seem concerning how aggressive they are getting with the AI spending with the with the data center building. and there was some news that we were just digesting earlier, which I wanted to get your reaction to. This was some reporting from Nike, Asia where they found that There is a lot of debt that isn't being reported by some of the tech companies like Google, Meta, Microsoft, Amazon Oracle that they are taking a lot of their debt and issuing it through SPVs, which is basically off balance sheet debt. And to be clear, like there's not a lot of clarity into any of this. But I'm wondering if you consider that to be a concern for these big tech companies, the amount of debt that they're seeming to be more interesterested in issuing at this point And then also the possibility that there's a lot of this happening off the balance sheet and the question is that raises of the sustainability of how much they're spending. So less concerned about the efforts of Alphabet and Amazon and Microsoft in that area. But Some of the, you know, the newer entrantance that um being more aggressive with financing. And I think that, you know, the smart companies for a period of time only operate as well as their less smart in competitors in terms of the way that they structure the growth of this. And so I think the risk is just the proliferation of competitors and some less disciplined than others that has the risk to drag down even those players that are disciplined, which I put alphabet you know in that basket as well as Amazon and Microsoft and meta, but there's a lot more companies you providing these services now and some like meta that never provided cloud based services before that are now getting into the business. So from that standpoint, it's definitely worth monitoring. You know there's a possibility that you get to the point where this buildout goes too fast and that lack of discipline ends up getting paid for by the as well. and that's something we pay a lot of attention to. I will say with alphabet you know here, I think they're doing everything that they need to do as a company to be well positioned in this AI world. where When you re architect the entire company through this process limiting the number of competitors that are going to exist in the world in the next three, five, ten years. So when we get to the inevitable other side of this, there's just going to be less competition. If you're a small company competing in advertising and content and otherwise, there's almost zero chance you can compete with these companies with the amount of money that's being spent justust on the cloud revenue. U that grew eighty two percent. I mean twenty five billion dollars, huge, huge numbers Do we know much about who those customers are And I lost thatop because One thing that I've been trying to monitor is how much of the revenue is coming from an open AI andanthropic And I essentially how reliant these companies are on a small subset of companies. Do we know much about like the diversification of that revenue It's concentrated and those are two key components of it. I would say in addition with alphabet now you have the selling of the TPUs to third parties that's beginning to show up in revenue as well. So I don't want to say it's polluted because that's not a bad thing but that's driver of incremental growth and somewhat of a contributor to the acceleration. But the company did say that the cloud business accelerated even without that. And that's also going to be a big driver of the business in coming years. I mean, this is now on kind of a run rate path. if you look at the current quarter plus the rate of growth know like about a hundred billion dollar business this year. And then if you look at their backlog they have as a company, like the baseline for the next two years is north of one hundred fifty billion. You know, So there's so much growth here If one player falters then that can have an effect. But if one player falters and the demand for AI stays constant then it will be manageable And that, you know, what we may be seeing one if if someone that's in a leadership position now that changes You know, and too, if demand for AI holds up otherwise, I think those are topics that ebb and flow in the day to day, you know, media as well All right, Scott Devittt, senior research analyst at Rosenblack Securities, Scott. We really appreciate you joining us. Thank you Thank you. That is it for today. Tune in tomorrow for our conversation with Noah Smith. We discuss the AI bubble, the rise of inequality in America, the fertility crisis, the national debt. And lots, lots more D don't miss it