AI Talent Needed, Copilot Plus PCs Underperform, Amazon's AWS Growth Stalls, SolarWinds Acquired

[00:00:02] It's Monday, February 10th, 2025 and I'm Dave Solt. Four things to know today. Tech talent in demand as companies are struggling to fill AI and cloud roles. Copilot Plus PCs are struggling as shoppers say no thanks to AI upgrades. Amazon's profits jump but is AWS falling behind in the AI cloud race? And SolarWinds sells for $4.4 billion. And Enable might be next. This is the Business of Tech.

[00:00:32] Last week's jobs report attracted significant attention due to anticipated revisions. The labor market appears cooler with average monthly growth for 2023 revised down from $251,000 to $216,000 and from $186,000 to $166,000 for 2024. The labor force grew by an average of 150,000 people per month in 2024 compared to a previously reported 90,000.

[00:01:00] Job growth now sits slightly above this adjusted labor force growth, suggesting a lower risk of overheating. Notably, past data revisions reveal that 589,000 fewer jobs were added in 2024 than initially reported. Consumer sentiment has declined for the second consecutive month, reaching its lowest level since July, according to a preliminary release from the University of Michigan.

[00:01:25] Inflation expectations for the upcoming year have risen to 4.3% following recent tariff announcements. A report by CompTIA states the technology companies added nearly 7,000 tech jobs in January, indicating a robust start to the year. However, the overall tech workforce grew by an estimated 228,000 positions across all sectors, even as the tech unemployment rate rose slightly to 2.9%.

[00:01:51] The analysis noted a surge in new job listings for tech positions, with over 51,000 added, bringing the total to more than 476,000. The user interface and user experience design positions saw a 54% increase in postings, highlighting a shift toward skills-based hiring, with 45% of January's job listings not requiring a four-year degree.

[00:02:15] A survey conducted by Revature found that over 75% of businesses struggled to meet their IT talent needs, leading many to focus on upskilling existing employees. Over 80% of leaders are concerned about attracting technology talent this year, and more than half plan to implement upskilling and reskilling initiatives. Challenges are particularly pronounced in machine learning, artificial intelligence, and generative AI, with data analytics, cloud computing, and cybersecurity also noted as critical areas.

[00:02:45] In 2024, small business transactions in the U.S. rose by 5%, with over 9,000 closed deals totaling an enterprise value of $7.59 billion, according to BizBuySells' Insight report. The median sales price reached $345,000, with quicker transactions averaging 168 days on the market. Key drivers included a 15% increase in manufacturing acquisitions and a 74% surge in technology transactions.

[00:03:15] Despite inflation and rising costs, over half of business owners reported high expenses, anticipating further increases due to new tariffs. As corporate professionals and young entrepreneurs enter the market, demand for stable, recession-resilient businesses continues to grow. Brokers predict that seller financing will become increasingly important amid tight lending conditions. Why do we care?

[00:03:39] The labor market is showing signs of cooling, but the revisions to job growth suggest a slower decline rather than a sharp downturn. Significant for the IT services sector because a softer labor market could ease some hiring challenges while keeping demand stable for outsourced tech services. Let's note that while the increase in tech jobs is positive, the rise in tech unemployment rate to 2.9% suggests some underlying weakness.

[00:04:05] On the small business front, the 74% increase in technology-related business transactions suggests that IT services, software firms, and tech-enabled businesses are attracting stronger investment interest. The rise in seller financing reflects a tighter lending environment, which could impact IT service firms seeking funding for expansion.

[00:04:26] However, the appetite for stable, recession-resistant businesses suggests that companies with solid recurring revenue models, such as managed service providers, may be in a strong position for acquisitions or growth. With every new breach and threat that I cover, it's clear that cybersecurity isn't a luxury anymore. It's a necessity. That's where Huntress comes in.

[00:04:50] Their fully-managed cybersecurity platform is built for every kind of business, not just the 1%. Huntress seamlessly integrates their products and threat-hunting team. Their EDR, ITDR, SIM, and security awareness training solutions are purposely built for their elite 24x7 Security Operations Center to stop threats before anyone else even spots them.

[00:05:13] This potent combination of purpose-built cybersecurity and threat hunting expertise is one of the many reasons why G2 users have voted Huntress the number one rated EDR for growing businesses. To see what people-powered cybersecurity looks like, visit Huntress.com slash MSB Radio.

[00:05:34] As reported in the Register, sales of Microsoft's Copilot Plus PCs have been disappointing, with only 5% of AI-capable laptops sold in Europe during the last quarter of 2024 classified under this category according to Context. Despite the increasing integration of artificial intelligence in devices, consumers are not actively seeking out these features.

[00:05:54] The Copilot Plus PCs launched to compete with Apple's offerings are priced 57% higher than the average notebook, making them less appealing amid tight consumer budgets. The gap in demand has led to a push toward enterprise buyers, as Microsoft works to clarify the value of the devices. Analysts predict that while AI-enabled PCs will eventually dominate the market, the pace of adoption is slower than anticipated, primarily due to high prices and a lack of compelling applications. Why do we care?

[00:06:25] The slow sales of the Copilot PCs underscore a broader challenge in AI adoption. Consumers aren't buying into AI features just because they exist. While AI-enabled devices are positioned as the next major computing shift, the lack of immediate, compelling use cases, combined with high costs, suggests a disconnect between the marketing hype and real-world demand. Now, that isn't necessarily bad. It could just be timing.

[00:06:49] With the models moving to commodity, we're watching for applications that matter. Amazon reported better-than-expected earnings and revenue for the fourth quarter of 2024, with earnings per share at $1.86, surpassing the forecast of $1.49. Revenue reached $187 billion, slightly exceeding expectations of $187.3 billion.

[00:07:15] However, the company provided disappointing guidance for the current quarter, projecting sales between $150 billion and $155.5 billion, falling short of analysts' expectations of $158.5 billion. Amazon's net income nearly doubled to $20 billion, attributed to cost-cutting measures and strengthening its cloud business. The company's capital expenditures totaled to $27.8 billion in the quarter as it invests heavily in data centers and artificial intelligence technologies.

[00:07:44] Advertising revenue also saw an 18% increase, reaching $17.3 billion. As of Thursday, Amazon shares were up 9% of the year. Amazon Web Services announced a quarterly revenue of $28.8 billion, marking a 19% increase over the same period last year. While this figure closely aligned with analysts' expectations, it still fell short of some estimates.

[00:08:07] AWS is now on track for an annualized revenue run rate of $115 billion, according to Amazon CEO Andy Jassy. However, the company's growth lags behind its major competitors, which experience growth rates just above 30%. AWS continues to face challenges related to data center construction and chip supply issues, contributing to its slower growth.

[00:08:31] Additionally, Amazon's capital expenditures reached $26.3 billion during the fourth quarter, primarily supporting AWS. Why do we care? While AWS remains a dominant cloud player, its 19% growth rate is well below competitors growing above 30%. This suggests that the hyperscaler cloud market is maturing, and AWS may be losing ground in AI workloads or facing tougher competition from Microsoft and Google.

[00:08:57] IT service firms should track where workloads are shifting, especially as multi-cloud and hybrid strategies become more prevalent. There's also reason to be skeptical of AI and data centers that may not all be needed with driving down the cost of the models. SolarWinds has announced its acquisition by Tern and River Capital for $4.4 billion, translating to $18.50 per share.

[00:09:24] The deal, which has received unanimous approval from SolarWinds Board of Directors and written consent from majority stakeholders Tama Bravo and Silver Lake, will transition the company to a privately held status, removing it from the New York Stock Exchange. SolarWinds will retain its name and continue its operations from Austin, Texas. Why do we care? Disclosure, I am a shareholder. I guess I won't be much longer. I included this because I expect Enable to go the same path.

[00:09:53] I'm a shareholder there too, so you know. The path for both being the same. Go private, make changes without public market scrutiny or need for quarterly results, and then make your next exit decision in three to five years. To be fair, if both these happen, I no longer have disclosures to me. Are you ready to get your brand in front of the tech leaders shaping the future of managed services?

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[00:11:08] Thanks for listening. Today is national clean out your computer day. Take a moment and delete all that extra junk. Nerdy Ocon will be held in Palm Springs, California from April 7th through 9th. Visit NerdyOcon.com to learn all about it. The Business of Tech is written and produced by me, Dave Sobel, under ethics guidelines posted at businessof.tech. If you've enjoyed the show, make sure you've subscribed or followed on your favorite platform.

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