Google's making the right moves in AI and core businesses, says Jefferies' Brent Thill

With us this morning, Jeffrey’s analyst Brent Thill just raised his target on Alphabet to 200. He was at 180, has a buy rating on the stock and a buy on Microsoft. Happy Friday, Brent. Happy Friday. Are we done worrying about existential threats to search on the Alphabet side? I think in the short term you know Google put up great numbers across YouTube cloud search and clearly the the sentiment was the worst of any tech names that we cover here and everyone continue to believe that AI wasn’t even part of the story and I think what they’re proving is AI is going to matter but it’s going to matter down the down the road. Today we’re still super early in this journey both for Microsoft and Google. It’s it’s really starting to only build and that’s going to be the next 10 year wave. So we’re at the beginning. We think that Google’s making the right moves. They could be quicker. They could be faster to make those moves and get them address. But we think again based on what we’re seeing so far, there’s no erosion of sort of share and advertisers continue to flock to the platform because the users are still there. We’ve been talking all morning about the CapEx arms race and it was a healthy beat on that front at Alphabet last night. Is the guidance on CapEx still within the realm of the reasonable, You know every quarter we bring CapEx up for for Microsoft. You know we we brought it up you know over $10 billion initially at the beginning of the year and we’re continuing to be too low on CapEx. And I think what we’re, we’re finding with the AI war, right, there’s effectively only a handful of companies that can compete in a in a major way and it’s a CapEx war. Every single vendor from Meta, Microsoft, Google, all of our CapEx numbers are going way higher, even for Microsoft again clearing over $50 billion of CapEx this year, that number you know, could be 65 to 70 billion plus next year. So you’re just looking at a situation where everyone is still building this AI infrastructure and This is why, you know, semis and hardware continue to outperform both Internet and software because of the investments that all these vendors are making. You know when Zuckerberg, you know, posted the picture of him and Jensen and his Instagram, you know, everyone knew where the money’s going, right. And that’s that’s effectively where everything is going right now. It’s not going anywhere else other than NVIDIA and and the basically enabling infrastructure, these data centers we ran into one one individual this week that said we’re we’re not worrying about power and the transmission lines actually to to transmit all this AI excitement to to the end user. So we’ve we’ve got bigger problems right now beyond just technology that the tech industry has to solve and it’s it’s pretty eye opening some of the stories that we’re hearing. Yeah, I mean the the power issue is a real one and the billions that are going to have to go into that side of things just to be able to to actually make good on all the billions going into data centers is important. Brent you know the numbers themselves are just staggering. You’ve been covering this industry for a number of years. Just put them in some perspective. I mean I think you just said Microsoft could spend $70 billion next year on CapEx. It’s it’s almost hard to conceive of numbers that large. It it really is and I think you go back to you know this is again really, really early and I think they have to build ahead of the demand. They’ve said this today, they’re sold out. They can’t meet the the the demand, the the capacity. They’re just they’re overwhelmed and this is the same situation when you talk to Oracle, when you talk to everyone in the industry, they’re at this point that demand is exceeding the supply and so they’re having to make a guess of what is the right demand level that they’re going to see and they’re all building ahead of of what’s happening now. We could run into a situation where they may over build. Now the good news for Microsoft is they’ve said is they could over build for Azure, but maybe their security business sees an influx of demand, maybe their gaming business and they can shift demand around to their different divisions. So Microsoft’s in a unique situation because they can go up and down the stack from applications to security to gaming to infrastructure. Other other companies that we cover can’t really flex that way. So yeah, it’s going to be the numbers are really hard to believe. Every time we look at it. We’re like there’s no way they can spend more and they keep spending more. We keep raising our numbers but they again, they’re doing it profitably, which is amazing, right? This year, margins up 200 basis points.