Microsoft's capex increase for AI infrastructure is not a surprise, says Deepwater's Gene Munster

All right. For more on Microsoft and Alphabet, let’s bring in Fast Money Franchine Munster of Deep Water Asset Management. Gene, what’s your initial take on you pick Microsoft or Alphabet. We’ll do Google in one piece usually when you’re listening to the calls, I just got off the call, you can pick up some context, then look at the stock and see why it’s moving. And Ruth Perratt, their CFO said a minute ago that they expect to continue to invest in AI infrastructure and AI talent and expand margins throughout 2024. Now well that may have been part of the Street expectation. Reiteration of that in my mind was a positive given obviously what we’ve seen and heard over the last 24 hours. And so I was surprised to not see the stock higher on that. They are doing it both. Google is not only aggressively investing and it was aggressive. They spent 21% more in CapEx in the March quarter than than analysts had expected. And despite all that, the stock continues to to move up. So I would expect that comment from Ruth Pratt to have been an incremental positive. I was picking up some of the chatter on the desk as as you’re as you were talking earlier and I think this piece around search, what they are doing, the fact that search growth accelerated, the expectation was 11%. They did 14% growth in search, that’s 58% of their business. That of course addresses this narrative. And Sundar, their CEO, was quick to point out that their search generative experience, that’s their lab where they’re testing some of this generative AI within search. They say that it is performing to their thesis, which is the more that people use generative AI, the more actual old school search they do at the same time. And so this seems to be lining up pretty well against the bear case on Google. So that was my take away, felt good about search and felt great about where margins are. So basically you’re saying Gene that you know Alphabet has indicated that they will spend, they spent more already on on CapEx and they’re going to spend even more, but they’re still going to expand margins and that’s very different from what we heard from meta yesterday in terms of the concerns, very different. They had this big step up from just under 9 billion in CapEx in the December, 11:45 billion in the March quarter and Ruth Pratt said to expect it to be up and rough up a little bit and roughly the same. So we don’t know she did say up, but she also talked about roughly the same. So I don’t think there’s this negative surprise around margins and related to or or the CapEx spend and it does speak to, I mean they they are, they grew CapEx 91% year over year in the March quarter. So they are putting the accelerator to the floor and trying to build the infrastructure. And I just want to point out this unique dynamic around AM more broadly and this impacts a lot of companies is this, they’re doing the spending with this CapEx but also they’re seeing the revenue growth we saw in Azure, we saw it in Google cloud acceleration of revenue growth. So this is pretty unique when you’re seeing this paradigm shift and both of those are moving in the right direction. I did bury the lead Melissa’s I’ve thought about what I saw in the Google and Microsoft CapEx numbers and Microsoft’s as I look forward to May 2nd and when Apple reports their quarter, this is going to be their first quarter where they talk about put AI in a more substance context. They have of course have never really brought it up in prepared remarks. And so I suspect, I’m suspect that they’re going to talk about a major or a significant increase in CapEx related to AII would view that as a positive. But I think investors should just have the right lens going into Apple’s print. What we’re seeing here, Apple’s going to have to take that same path because they want to compete in AI too.