Amazon Soars, Apple Struggles, AI Faces New Scrutiny

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, podcasts, radio, news. Bloomberg Tech is live from the heart of Silicon Valley with Ed Ludlow in San Francisco.

**Ed Ludlow** (0:22)
This is Bloomberg Tech coming up, Tim Cook's final Apple earnings call as CEO. It's a story of supply crunches, demand misreads, and a tough outlook. Plus, Amazon shares roaring on AI progress, big spending, and accelerating cloud growth. And after OpenAI's breaches, it's now Anthropic's turn, with the company saying its AI models breached three organizations during cybersecurity tests. We have the details. Technology earnings and a very big reaction in stocks. Apple is on track for its biggest drop since March of 2020
Amazon is on track for its biggest jump since April of 2012 Let's get the stories. Bloomberg's Ryan Feselica is with us. Let's start with Apple. Everything we need to know about Tim Cook's final quarter as CEO of Apple.

**Ryan Feselica** (1:13)
Well, I think the major takeaway from Apple's report was how much the increase in memory prices is really starting to weigh on the company. They talked a lot about component shortages. People have been very concerned that the memory issue is going to really eat into their margins, potentially eat into demand. But as we talked about a couple of days ago, the stock hadn't really been reflecting a lot of these concerns going into the report. It had a very strong month going into it. I think this as part of the overall anti-AI sentiment. Now it does seem like that has flipped again and people are sort of reassessing some of the issues that Apple is facing even as they continue to maybe take a new look at some of the AI names that had been selling off prior to this.

**Ed Ludlow** (1:57)
Apple's saying revenue growth in the set time of quarter 9 to 11 percent, the street was looking at 12, and they also admitted they misjudged demand. They didn't even place the right amount of orders for chips on the processor side. Amazon, there is growth in AWS and there's clearly AI demand. What do we need to know?

**Ryan Feselica** (2:15)
Yeah, they also talked about how their chip business is starting to see pretty strong revenue there. Overall, a very strong report out of Amazon. I think it really highlights the divide we've seen this earning season between the companies that are able to do a lot of AI-related spending, but make the case that they are justifying that with improved growth, with improved prospects. So you put Amazon and Microsoft into one bucket. Both of those companies really had powerful reaction to the results. I think people were sort of reassessing their outlooks, following the strong results from their cloud business, even in the face of higher spending. On the other side of that equation, you had Alphabet and Meta maybe didn't do as good a job justifying how much money they're spending, and you saw those stocks come back.

**Ed Ludlow** (2:58)
Amazon did raise capex by $20 billion in part because the cost environment is higher, but a lot of AI momentum. Bloomberg's Ryan Verstellica, thank you very much. To our next guest, Amazon's set of numbers define Game Changer. Jordan Klein, Managing Director, Sector Specialist for Tech, Media and Telecom at Missouri Securities is with us. You see it as a game changer. What was it about Amazon's numbers that you liked?

**Jordan Klein** (3:22)
Well, yeah, I definitely think it was a game changer just because the acceleration in AWS growth on the top line at 37 percent, I think is really convinced more people that AI is improving their overall business. And then the disclosure they gave in terms of how AI is impacting them on the silicon side, you know, with their Gravitron and Tranium chip, they're really well positioned. So all in all, you know, the bookings growth, the backlog and the commentary from Andy Jassy about what's to come, I think set this stock up to continue to like outperform going forward for sure.

**Ed Ludlow** (4:04)
What Amazon said is it's chip business where it rents compute capacity, but based on their in-house silicon, right, has a revenue run rate $25 billion. Dwell on that a little bit. Are you kind of extrapolating out and saying, wow, that's another line of business where Amazon can get some upside?

**Jordan Klein** (4:22)
Yeah, I think it's showing how much benefit that they get from having their own custom chip. Not only does it enable them to get supply, right, because it's so difficult to get graphic processors from NVIDIA, it also enables them to offer that to their customers probably at a lower cost.
So you win on both sides, supply and price, or cost, and you saw that because their margins are going up very healthily. And I think that's also encouraging to investors because all these companies are going to be continuing to spend. They need more compute, more capacity. But what the worry would be is they see compression on the margins of the cash flow. And even though Amazon's cash flow was negative for the last 12 months, their margins in their AWS business are increasingly going higher.