Big Technology Podcast
00:02:11 · Alex Kantrowitz
[00:02:11] S0: Certainly an interesting week to be called Big Technology Podcast when the big technology companies lost nearly a trillion dollars in market cap. This is from the Financial Times. Big tech sheds nearly $900,000,000,000 en route over soaring AI spending. Big tech companies lost about a trillion dollars in market value after another sharp rise in their spending in the third quarter, which has turned some of the most profitable businesses in history into cash incinerators as they stake their futures on AI. Shares in the big four hyperscalers Amazon Meta, Microsoft and Google all fell after revealing their third quarter results in which capital expenditures almost doubled, and alarm bells sounded about slowing revenue growth in the core business. Ranjan, here's my hot take here. You know, a lot of this has been borne by Google, which reported still strong but not as strong as expected search results. Search results. That's funny. Search earnings. Right? They were supposed to grow 15%. They grew 12%. I don't really think this is a spending issue. I think Wall Street has basically given these companies the green light to spend and spend with abandon. But we're getting to the point where free cash flow is going from positive to negative, as we saw again with Google two quarters in a row of negative free cash flow. And when that happens, the questions about the core business emerge. And so this isn't a question about AI spending, it's really a question about is your core business going to stay around long enough? And that goes for Google with advertising and Amazon you could call it the retail as their core business. Know those are the companies we've had the questions with. If the core business goes away or shrinks then Wall Street seems to have some issues with all this infrastructure spending. Your thoughts?
00:03:59 · Ranjan Roy, Alex Kantrowitz
[00:03:59] S1: No. I completely agree. Think there are those two elements of it. And I I do think there is an element of the AI spending, and I'll get into it fundamentally changes what business all these companies are. And going back to that's why it's so important that their core businesses at least seem reasonably promising because the moment Google and Meta created some of the greatest cash machines of all time, literally the greatest business models to, like, ever exist in humanity. Like, the profit margins, the monopolized efforts in terms of no one else being able to enter these markets. And anything that shows that those are under threat makes us question, what is Google? Is it an AI compute business? Is it a enterprise services business? Or is it a search business? And Google themselves, I mean It's [00:04:53] S0: a golden goose, man. It's not a golden egg. [00:04:55] S1: Okay. Okay. Fine. Golden goose [00:04:58] S0: lays a golden egg. But, yes, continue. [00:05:01] S1: Does the golden goose lay a golden egg? Is that the whole thing? [00:05:04] S0: Or You would imagine. At least it's egg with the golden chicken side. I mean I'm gonna brush
00:05:04 · Alex Kantrowitz, Ranjan Roy
[00:05:04] S0: Or You would imagine. At least it's egg with the golden chicken side. I mean I'm gonna brush [00:05:09] S1: up on my childhood fables after we're done with this call. But Okay. Let's get back to Google's learning. So it is still the numbers are, I mean, insane. Again, in one quarter, revenue is still up 25%. Operating profit is still up 30%. Operating margin is still holding strong around 30%. So this is still an incredibly profitable, incredibly fast growing business. But again, core search and this is one thing that I found really interesting is Google has been touting, especially in like SEO, GEO land where I spend a lot of time. Overall queries are actually increasing in Google search. So Google's like, search isn't dead. Everyone's still going in and searching things. But they finally themselves said AI mode is going to actually... It went 2% of all searches ending in AI mode to 8.9% of all searches. So it's dramatically increasing. I'm sure every listener starts to feel that, and they don't know how to monetize that yet. They might figure out the right business model to monetize that, but it will be a different business. So to me, I think the core search business, this was the earnings report that reminded everyone. I don't wanna say it's done. It's still giant, but it's never gonna be what it was before.
00:06:31 · Alex Kantrowitz, Ranjan Roy
[00:06:31] S0: Okay. So this is interesting. So cite the statistics again in terms of the amount of searches that have gone from AI overviews. Was it 2% to 8%? Yeah. 2% to eight And that's percent important. Yeah. Okay. So think about this. Let's play this out. Google is seeing an increase in searches, all time increases in queries. Is it possible that these AI overviews make up most of those or even responses back and forth? Because I imagine every time you ping AI mode, you get a response. So is it possible that we're just seeing instead of Google not being able to monetize AI mode and this is an interesting point that Kevin Indig made on X what if people are just searching less? So all the growth comes from AI mode potentially. And you end up seeing far fewer searches because people are starting to search within ChatGPT, maybe Claude, maybe Grok. ChatGPT has 1,200,000,000 users. That has to play into this. [00:07:30] S1: They're still saying search query... Overall aggregate search queries are growing on Google. Sundar had said that before. They reported it again. So they're still saying that that is not declining. Of people actually directly asking the question to Google in google.com, not in Gemini. So it it hasn't yet. I agree. I don't Wait. [00:07:52] S0: Hold on. What counts as a search, though? Like, if you're in AI mode on google.com, is that a Gemini? Or is that [00:07:58] S1: See, I don't know. That's a good question. [00:08:00] S0: They are counting that. No. Because if they're [00:08:02] S1: I'm sure they are in
00:08:02 · Ranjan Roy, Alex Kantrowitz
[00:08:02] S1: I'm sure they are in [00:08:02] S0: AI mode as part of their search data, right, if it's grown from 2% to 8%, then AI mode counts as searches. [00:08:08] S1: Actually, you know what? So they actually said that overall search queries grew at their fastest year on year in five years. So they don't give aggregate total numbers. They don't break down what exactly qualifies as a search. I think that's a good point because to me, the idea that more people are searching more directly into the Google search bar, I agree. Like my... I mean, I know my personal behavior is probably not fully reflective of the average consumer, but overall, it has to be going down. So I think that's a good one to push on overall. What is a search? [00:08:47] S0: Because you know what? What do you do when you search? You want to go to a website. And what are websites experiencing? You know? They're not experiencing [00:08:55] S1: Well, no.
00:08:55 · Ranjan Roy, Alex Kantrowitz
[00:08:55] S1: Well, no. [00:08:56] S0: The traffic from Google Search. Let me just read this. I want to put this out for sake of argument. This is from the Reddit CEO Steve Huffman on his earnings call this week. He said Google is crawling as hard as ever. The reality is that the AI mode does not drive traffic, not for us, not to anybody as far as I know. Google used to be a traffic driver, now it's not. People want to... People still want Reddit. It's just Google is not sending them to Reddit the way they used to. We don't control Google. We only control Reddit. And then, my favorite part of the whole thing, and I think this is most telling Google is teaching people that if you want to come to Reddit, you need to come to Reddit. Is it possible that right now we're seeing a behavior shift where people used to search Google to find Google was an improvement on the portal, right? So you had Yahoo where you would click through a bunch of links to get to the website you want. Then you went to Google, you search for things wanted. What's happening now with AI that if you actually want to go to a website, don't search anymore. You just type in a URL. And so it's interesting. Google potentially by not sending referral traffic to sites like Reddit sort of has potentially even disintermediated itself. [00:10:07] S1: Yeah. No. I think this will happen across the board. I think it was a year ago. When did we say the web isn't dead? It is in secular decline.