By Zaheer Kachwala and Joel Jose Dec 12 (Reuters) - Broadcom shares fell more than 11% on Friday after the chipmaker warned growing sales of lower-margin custom AI ​processors were squeezing profitability, sparking worries that the business may be less ‌lucrative. The warning on margin impact deepened investor jitters over Big Tech's AI returns, a day after Oracle fell ‌10.8% due to high capital spending for a debt-funded AI infrastructure buildout. Investor scrutiny of AI spending has intensified in r ...

Core Insights - Google's AI infrastructure leader emphasized the need to significantly scale up technology to handle increasing user demand and complex AI requests, indicating that fears of a bubble may be overstated [1][7] - The company aims to double its serving capacity every six months, with a target of achieving a 1000x increase in the next 4-5 years [1][5] Infrastructure and Capacity - Google's ability to support AI products like Gemini relies on its cloud infrastructure, which must efficiently manage a growing number of user queries [2] - A spokesperson highlighted that the demand for AI services necessitates a substantial increase in computing capacity, driven by efficiency improvements and new investments, such as the development of Ironwood chips [3] Market Dynamics - Major cloud providers, including Google, Amazon, and Microsoft, previously expanded their compute capabilities in anticipation of AI user growth, which is now materializing [4] - Serving capacity is becoming a critical challenge as companies enhance their AI offerings, with Google positioned to meet this demand due to its capital expenditures and strategic development of AI chips [5] Challenges and Demand - Despite the demand for AI infrastructure, companies face challenges related to physical constraints such as power, cooling, and networking bandwidth, which impact the speed of building data center capacities [6] - The rapid push to double serving capacity may indicate that the pessimistic views on AI growth are not entirely accurate, as the current demand reflects unmet needs rather than speculative enthusiasm [7][8]

Summary of Key Points from the Conference Call Transcript Industry Overview - The focus of the conference call is on the cloud computing industry, particularly the earnings season for major players including Alphabet, Amazon, Microsoft, Oracle, Alibaba, and Baidu [1][6][9]. Capital Expenditure (Capex) - Capex guidance has been consistently increasing, with Microsoft raising its expectations to over USD 30 billion for Q1, up from USD 24 billion. Amazon's Q2 capex was 25% ahead of consensus, and Alphabet raised its FY25 guidance to USD 85 billion from USD 75 billion [2][6]. - There are upside risks for further capex increases due to the demand for computing power [2]. Application-Specific Integrated Circuits (ASICs) - Alphabet is noted as the only Western cloud service provider to have successfully deployed its latest chips, which has strengthened its partnership with Anthropic. There is potential for further upside from these Ironwood chips [3]. - Commentary is anticipated regarding Microsoft's project Braga/Normandy and Amazon's Trainium3 chips, particularly concerning the supply of Trainium2 [3]. EBIT Margins - Margin outlooks are a key focus, with Oracle's strategy under scrutiny. Alibaba aims to maintain steady cloud operating margins while reinvesting gains into growth and AI deployment. For Western companies, margin accretion is expected, but concerns about price wars persist [4]. Bottlenecks in Supply - Demand for cloud resources continues to exceed supply, with companies indicating they would increase capex if possible. Potential bottlenecks are expected to arise from regulations, power demand, chip efficiency, and transitioning clients from legacy systems [5]. Company-Specific Insights - **Alphabet**: Anticipated to report Q3 results on October 29, with expectations of revenue growth and margin improvements in Google Cloud. The company has seen significant growth in enterprise deals and customer adoption of its Gemini platform [28][30]. - **Amazon**: Reported a 13.3% year-over-year increase in net sales for Q2, driven by North America and International divisions. However, AWS operating income missed consensus expectations. Guidance for Q3 indicates cautious growth expectations [43][44]. - **Alibaba**: Expected to report a 3% year-over-year revenue growth for Q2, with cloud revenue projected to grow 29% year-over-year. The company aims to maintain stable margins while investing in AI and cloud infrastructure [17][19]. - **Oracle**: Focus on margin strategies and potential impacts from increased capex commitments [4][6]. Financial Metrics and Valuations - **Alphabet**: Expected group revenues of USD 101.7 billion and EBIT of USD 33.2 billion for Q3, with a target price of USD 295.00 [31][37]. - **Amazon**: Target price set at USD 260.00, with expectations of strong performance in e-commerce and AWS [45][46]. - **Alibaba**: Target price maintained at USD 205.00, with a focus on cloud growth and margin stability [18][22]. Conclusion - The conference call highlighted the ongoing growth and investment in the cloud computing sector, with significant focus on capex, ASIC developments, margin strategies, and potential supply bottlenecks. Key players are expected to report strong earnings, although caution remains regarding market competition and regulatory challenges [1][9].

Summary of Key Points from the Conference Call Industry and Company Focus - **Industry**: Technology and Digital Finance - **Companies**: Alphabet (GOOGL US), OpenAI, Trip.com, Booking Holdings Core Insights and Arguments 1. **Venture Capital Sentiment**: The latest HSBC Funding the Future Survey indicates a substantial increase in investor confidence in venture capital activity, driven by clearer US trade policies and expectations of Federal Reserve rate cuts [8][10] 2. **AI's Impact on Employment**: There are emerging signs of job losses in the US, particularly as AI technology continues to evolve and potentially replace jobs. The report suggests that AI's impact on the labor market is expected to grow [14][15] 3. **AI Trading Capabilities**: Recent tests show that while AI can provide valuable insights, it is not yet reliable for making high-stakes investment decisions in foreign exchange trading. AI is expected to augment rather than replace human decision-making in investment processes [25][26] 4. **Growth Drivers for Alphabet**: Alphabet's growth is supported by its full-stack AI strategy, including developments in Gemini, Ironwood chips, and high-quality datasets. The company is expected to benefit from increased demand in its Search and Cloud services, as well as YouTube [29][30] 5. **OpenAI's Computing Needs**: OpenAI requires an additional 32GW of computing power, estimated to cost around USD1.6 trillion to build. However, OpenAI plans to rent this capacity rather than build it, which could help manage costs effectively [38][39] 6. **Travel Industry Dynamics**: The global travel sector, valued at approximately USD3.3 trillion, is positioned for long-term growth. Trip.com and Booking Holdings are well-placed to leverage trends favoring experiential travel and consumer trust [33][34] Additional Important Insights 1. **Tariff Impacts**: The report discusses the effects of US tariffs on global trade, particularly how they are reshaping supply chains and trade flows, with ASEAN countries benefiting from a shift in imports away from China [57][62] 2. **COP30 Climate Talks**: The upcoming COP30 climate talks are highlighted as a critical event for discussing emissions pathways and financing, with expectations for significant outcomes despite past challenges in achieving consensus [47][49] 3. **Bitcoin Overview**: A brief explanation of Bitcoin's functionality is provided, emphasizing its role as a digital currency that enables peer-to-peer transactions without intermediaries [41][42] This summary encapsulates the key themes and insights from the conference call, focusing on the technology sector, the implications of AI, and the evolving landscape of global trade and finance.