Don’t let the Legos on his bookshelves in the background fool you - Nate Jones has insights on AI that are useful to us investors (and anyone in a career path that develops or uses AI, or might use AI). Case in point are his two most recent YouTube videos:
Here are my take-aways:
Amazon:
• Revenue up 13%YoY to $180B, Net income up 38%, AWS growing 20%, etc.
• But, Amazon’s cash flow actually went negative!
• Why? Their yearly Capex hit $125Billon - the highest of any company on earth. Ever. And 75% ofthat going directly to AI infrastructure. ($83B in 2024 Capex, btw)
• Amazon even took on $12B in debt.
• So when CEO Jassy claims the massive lay-offs of 10% of their white collar workforce, 30,000 people, is about “company culture” and Pandemic hiring bloat, that’s true, but it’s hiding the real reason.
• Jones claims this shows us “what’s coming for the entire tech industry.”
• 30K white collar jobs saves the company $6B year, which turns their currently negative FCF for -$4.8B into postiive FCF.
• Jones cites a BofA study of the top 5 hyperscalers (Amazon, Microsoft, Google, Meta, and Oracle) and found that their combined Capex is 94% of their Operating Cash Flows.
- “Human headcount is being converted to compute capacity.”
- “Salaries are being transformed into silicon.”
• Bottom line: “Amazon is under financial pressure not because the business is weak, but because the AI infrastructure race demands capital at a scale that even Amazon’s profit engine struggles to generate.”
• The perception is that Amazon was slow to AI with AWS, and has lost ground MS’s Azure, Google’s GCP, even Oracle. I’ll add that the whole rise of the NeoClouds (Coreweave, Nebius, etc.) is due to legacy cloud providers not jumping whole heartedly into providing AI cloud services well.
• CEO Jassy talked about company culture and Pandemic hiring bloat, but they already did 27k layoffs in 2022, so why wait 3 more years to do more? Jones says Jassy doesn’t want to admit financial pressure to Wall Street.
But, this isn’t just an Amazon problem, it’s an every hyperscaler problem. How do you fund massive Capex while maintaining profitability? But cutting everywhere else. Amazon and others are cutting jobs because they’re losing money, they’re some of the most profitable companies in history. They’re cutting to fund AI Capex, since that’s what management sees as necessary to be profitable in the future.
Microsoft and Meta (Facebook) :
• Microsoft itself cut 15,000 jobs
• Meta continues its “year of efficiency”
• Both beat Wall St. expectations. Both announced high Capex spending will continue (Meta nearly doubling Capex, for instance).
• Yet Meta was up 10% while MSFT was down 10%.
• Jones thinks the difference is that Meta owns its own AI and can point to how it improves its business, while Microsoft gets its AI from partners like OpenAI (Oh, and Azure revenue was down 1% last quarter).
• “Spending on AI is fine; spending on AI you don’t own is a different story.”
• By not owning their own AI, they’re exposed to other companies’ execution. Which is riskier.
Apple and Google (and Anthropic) :
• Apple chose Google, somewhat because Anthropic was nickel and diming them with powering Siri with Claude, whereas Google was a good prior partner for search, so getting Gemini on good terms was the better choice.
• Jones thinks investors will like the Gemini deal since they haven’t had faith Apple could do AI on their own.
• Google’s huge search profits have helped their AI development.
• Kind of ironic that a year ago, many were worried about Google getting disrupted with search due to AI, but instead we see Google’s doing just fine with AI AND search.
• Anthropic closed a funding round valuing the company at $350B - double what it was just last Sept. That’s half the market cap of Walmart.
• Anthropic’s model is more trusted than many others, which should be sticky. They have a “safety focused development.”
Coreweave and Perplexity:
• Nvidia invested $2B in Coreweave at $87.20/share (now $93).
• Coreweave using the money to add 5 GW of capacity by 2030.
• Perplexity gets $750M from Microsoft
• Jones says the question for investors is whether the AI Infrastructure build out that’s happening is sized correctly - is it too small, too large, or just right? We won’t know for sure for years, but “none of the hyperscalers want to risk” not building out enough.
Tesla is now an AI company selling cars:
• Ending Models S and X, converting the assembly lines to build Optimus robots, starting at the end of this year.
• Grok is deployed across Tesla’s vehicles.
• Tesla investing $2B in xAI.
• More than a million paid FSD users
• Robtoaxi service expanding in H1 of this year.
• Tesla’s “future lies in AI and robotics, not premium sedans.” They have higher margin opportunities in robotics."
• Tesla spending $20B in Capex for AI, autonomy, and robotics.
• “A transition that most companies are just beginning to navigate.”
• "We’ll see whether Tesla can execute, but they have never been afraid of jumping 5 years into the future making a bet on where they think the market is going.
I found both videos to be worth watching twice.