2Q24 CSPs CapEx Commentaries Recap

ORCL upgraded guide for the next FY, META upgraded bottom of the range

I aim to update this tracker on a quarterly basis, quoting the most important CapEx comments from earnings calls of larger AI chip end customers. In this sense, we include GOOGL, MSFT, AMZN, META, ORCL, TSLA in my tracker.

In 2Q, commentaries are largely in-line with last quarter, with ORCL upgraded FY25 (ends in May) CapEx guide to $14B (“double what it is in fiscal year 2024”) from $10B. META also lifted FY24 guide from the range of $35-40B, to $37-40B, ang signaling will give further guidance when appropriate. Besides the normal CapEx comments, executives spent increasing time and efforts addressing the ROI questions from analysts this quarter.

We are still seeing our estimates of NVDA’s next year DC revenue taking a big portion of CSPs’ CapEx, but 29% is not crazy given CSPs’ aggressive pace of expansionary AI investments.

Below are the key quotes from earnings call:

ORCL 4Q24 – Ended May.31

CEO: “Now while we spent $3.5 billion on CapEx this quarter, the $2.8 billion shown in the cash flow statement is lower simply, as a result of timing of payments.”

“CapEx In fiscal year 2025 will probably be double what it is in fiscal year 2024 -- what it was in fiscal year 2024.”

Upgrade:

To $14B (double from this year $7B), from “about $10 billion in CapEx”

MSFT 4Q24 – Ended Jun.30

Amy Hood, CFO:

“We delivered operating margin growth of nearly three points year over year even as we accelerated our AI investments, completed the Activision acquisition, and had a headwind from the change in useful lives last year. So, as we begin FY25, we will continue to invest in the cloud and AI opportunity ahead aligned, and if needed adjusted, to the demand signals we see. .”

“Capital expenditures including finance leases were $19 billion, in line with expectations, and cash paid for PP&E was $13.9 billion. Cloud and AI related spend represents nearly all of total capital expenditures. Within that, roughly half is for infrastructure needs where we continue to build and lease datacenters that will support monetization over the next 15 years and beyond. The remaining cloud and AI related spend is primarily for servers, both CPUs and GPUs, to serve customers based on demand signals. For the full fiscal year, the mix of our cloud and AI related spend was similar to Q4.”

“Cash flow from operations was $37.2 billion, up 29% driven by strong cloud billings and collections. Free cash flow was $23.3 billion, up 18% year-over-year, reflecting higher capital expenditures to support our cloud and AI offerings. For the full year, cash flow from operations surpassed $100 billion for the first time, reaching $119 billion.”

“To meet the growing demand signal for our AI and cloud products, we will scale our infrastructure investments with FY25 capital expenditures expected to be higher than FY24.”

“We expect capital expenditures to increase on a sequential basis given our cloud and AI demand, as well as existing AI capacity constraints. As a reminder, there can be quarterly spend variability from cloud infrastructure buildouts and the timing of delivery of finance leases.”

“Being able to maybe share a little more about that, when we talked about roughly half of FY24’s total capital expense, as well as half of Q4’s expense, it’s really on land and builds, and finance leases. And those things really will be monetized over 15 years and beyond. And they’re incredibly flexible. Because we’ve built a consistent architecture, first with a commercial cloud, and second with the Azure stack for AI, regardless of whether demands at the platform layer or at the app layer, or through third parties and partners, or, frankly, our first-party SaaS, it uses the same infrastructure.”

“And in H2, we expect Azure growth to accelerate as our capital investments create an increase in available AI capacity to serve more of the growing demand.”

GOOGL 2Q24 – Ended Jun.30

Sundar Pichai, CEO:

“We continue to invest in designing and building robust and efficient infrastructure to support our efforts in AI, given the many opportunities we see ahead.”

“We are seeing tremendous momentum from our AI investments. More than 1.5 million developers are now using Gemini across our developer tools. And we recently unveiled new models that are more capable and efficient than ever.”

“Our momentum begins with our AI Infrastructure, which provides AI start-ups like Essential AI with leading cost performance for models and high-performance computing applications.”

“I think the one way I think about it is when we go through a curve like this, the risk of under-investing is dramatically greater than the risk of over-investing for us here, even in scenarios where if it turns out that we are over investing. We clearly -- these are infrastructure, which are widely useful for us. They have long useful lives and we can apply it across, and we can work through that. But I think not investing to be at the frontier, I think definitely has much more significant downside. Having said that, we obsess around every dollar we put in.”

Ruth Porat, CFO:

“With respect to CapEx, our reported CapEx in the second quarter was $13 billion, once again driven overwhelmingly by investment in our technical infrastructure, with the largest component for servers, followed by data centers.”

“Looking ahead, we continue to expect quarterly CapEx throughout the year to be roughly at or above the Q1 CapEx of $12 billion, keeping in mind that the timing of cash payments can cause variability in quarterly reported CapEx.”

META 2Q24 – Ended Jun.30

Susan Li, CFO:

“Turning now to the capex outlook. We anticipate our full-year 2024 capital expenditures will be in the range of $37-40 billion, updated from our prior range of $35-40 billion. While we continue to refine our plans for next year, we currently expect significant capex growth in 2025 as we invest to support our AI research and our product development efforts.”

“On the ROI part of your question, I would broadly characterize our AI investments into two buckets, core AI and gen AI. And the two are really at different stages as it relates to driving revenue for our businesses and our ability to measure returns. On our core AI work, we continue to take a very ROI-based approach to our investment here. We're still seeing strong returns as improvements to both engagement and ad performance have translated into revenue gains, and it makes sense for us to continue investing here. Gen AI is where we're much earlier, as Mark just mentioned in his comments. We don't expect our gen AI products to be a meaningful driver of revenue in '24. But we do expect that they're going to open up new revenue opportunities over time that will enable us to generate a solid return off of our investment while we're also open sourcing subsequent generations of Llama.”

“Our expectation, obviously again, is that we are going to significantly increase our investments in AI infrastructure next year, and we'll give further guidance as appropriate.”

“But we are building all of that CapEx, again with the factors in mind that I talked about previously thinking about both how to build it flexibly so we can deploy to core AI and gen AI use cases as needed and making sure that we both feel good about the returns that we're seeing on the core AI investments, which we're able to measure more immediately.”

Upgrade:

To $37-40B from $35-40B

AMZN 2Q24 – Ended Jun.30

Brian Olsavsky, CFO:

“Now let's turn our attention to capital investments. As a reminder, we define these as a combination of CapEx plus equipment finance leases. For the first half of the year, CapEx was $30.5 billion. Looking ahead to the rest of 2024, we expect capital investments to be higher in the second half of the year. The majority of the spend will be to support the growing need for AWS infrastructure as we continue to see strong demand in both generative AI and our non- generative AI workloads.”

“We remain focused on driving efficiencies across the business, which enables us to invest to support the strong growth we're seeing in AWS, including generative AI.”

Andy Jassy, CEO:

“We are investing a lot across the board in AI, and we'll keep doing so as we like what we're seeing and what we see ahead of us.”

“We have a deep partnership with NVIDIA and the broadest selection of NVIDIA instances available, but we've heard loud and clear from customers that they relish better price performance. It's why we've invested in our own custom silicon in Trainium for training and Inferentia for inference.”

TSLA 2Q24 - Ended Jun.30

Vaibhav Taneja, CFO:

“On the capex front, while we saw a sequential decline in Q2, we still expect the year to be over $10 billion in capex as we increase our spend to bring a 50k GPU cluster online. This new center will immensely increase our capabilities to scale FSD and other AI initiatives. We reverted to positive free cash flow of $1.3 billion in Q2. This was despite restructuring payments being made in the quarter and we ended the quarter with over $30 billions of cash and investments.”

“Energy storage deployments reached an all-time high in Q2, leading to record profits for the energy business. And we're investing in many future projects, including AI training and inference and great deal of infrastructure to support future products.”