Cloud Earnings Surge, Microsoft Delays Recall Feature, ChatGPT Search & Voice, & AI Media Experiment

[00:00:02] It's Friday, November 1st, 2024, and I'm Dave Solt. Four things to know today. Cloud leaders see strong earnings as AI demand drives high capital spending. Microsoft delays their AI-powered recall feature again. ChatGPT expands with real-time web search and voice features targeting broader applications. And, AI as the new voice of media? Look into it with a Polish radio station. This is the Business of Tech.

[00:00:31] Let's take a look at the cloud providers' earnings calls as Microsoft, Google, Amazon, and Apple all release data. Microsoft reported a strong fiscal first quarter for 2025, beating earnings and revenue expectations with earnings per share of $3.30 against an expected $3.10, and revenue of $65.59 billion versus the anticipated $64.51. Microsoft reported a 33% growth in Azure revenue driven by artificial intelligence services.

[00:00:59] While total revenue from its intelligent cloud segment reached $24.09 billion. Microsoft is facing cloud capacity constraints. While cloud revenues rose by 22% year-over-year to nearly $39 billion, the growth has slowed slightly compared to the previous year. Microsoft is investing tens of billions of dollars to enhance data center capacity with quarterly capital investments nearly doubling to $20 billion. The demand for AI is driving a

[00:01:29] data center building boom with Microsoft's growth in a data center building boom, with Microsoft planning to further increase capital spending in response to rising consumer consumption. And despite all the growth, their $13 billion investment in OpenAI is projected to result in approximately $1.5 billion in losses this quarter.

[00:01:47] Alphabet, the parent company of Google reported a significant earnings beat for the third quarter of 2024, exceeding analysts' expectations. Google Cloud reported a significant growth surge with a third quarter growth rate of 35%, up from 29% in the previous quarter.

[00:02:04] CEO Sundar Pachai attributed this acceleration partly to the company's advancements in artificial intelligence, which he stated are attracting new customers and increasing usage among existing ones.

[00:02:16] This performance bolstered Alphabet's overall revenue growth to 15%.

[00:02:21] Pachai revealed that over 25% of the company's new code is now generated by artificial intelligence.

[00:02:27] He emphasized that while AI aids in boosting productivity and efficiency, human programmers still oversee the generated code.

[00:02:35] Amazon reported better-than-expected earnings for the third quarter of 2024, with earnings of $1.43 per share, surpassing the $1.14 expected,

[00:02:44] and revenue of $158.88 billion, exceeding the anticipated $157.2.

[00:02:51] Despite slightly missing expectations for Amazon Web Services revenue at $27.4 billion, the segment grew 19% year-over-year.

[00:03:00] The advertising business also showed strong growth, expanding 19% to $14.3 billion.

[00:03:07] CEO Andy Jassy announced plans for approximately $75 billion in capital expenditures for 2024, primarily focused on technology infrastructure and generative AI.

[00:03:17] An Apple's fiscal fourth quarter earnings report for 2024 revealed a mixed performance, with revenue hitting $94.93 billion, surpassing estimates of $94.58 billion.

[00:03:28] The iPhone generated $46.22 billion in revenue, exceeding expectations, while services revenue came in at nearly $25 billion, but fell short of predictions.

[00:03:39] CEO Tim Cook noted strong iPhone 16 sales despite the challenges, stating they outperformed the previous model.

[00:03:46] Looking ahead, Apple anticipates low-to-mid single-digit sales growth for the December quarter.

[00:03:51] In a positive sign for user adoption, Cook stated that users are adopting iOS 18.1 at twice the rate of iOS 17.1 this time last year.

[00:04:03] Now why do we care?

[00:04:04] Well, tech had a fantastic quarter. Demand for cloud is very robust.

[00:04:08] The investment push in AI is unlikely to produce immediate returns, a trend that could impact IT service providers closely aligned with those companies.

[00:04:17] They should prepare for potential budget recalibrations among clients, particularly in sectors where tech investments may have previously relied on predictable cloud costs.

[00:04:27] Cost-cutting measures could potentially impact cloud providers' offerings, pushing clients toward an optimized selective cloud consumption model rather than blanket adoption.

[00:04:37] And we've seen customers lean into cost optimization.

[00:04:42] Microsoft has delayed the rollout of its Recall feature for Copilot Plus PCs once again, now set for preview with Windows Insiders in December.

[00:04:51] Initially planned for October, Recall aims to create comprehensive screenshots of user activity, but has faced multiple delays due to security concerns.

[00:05:00] Brandon LeBlanc, the senior product manager for Windows, emphasized the need for additional time to ensure a secure user experience.

[00:05:08] Recall will be an opt-in feature, allowing users to uninstall it entirely, and aims to enhance the privacy of its database through encryption and authentication via Windows Hello.

[00:05:19] This marks yet another setback for Microsoft, which has been working to address security issues since the feature was first scheduled for launch in June.

[00:05:26] And Microsoft has announced that consumers will have the option to purchase an additional year of extended security updates for Windows 10 for $30, following the operating system's end of support on October 14, 2025.

[00:05:40] This marks the first time consumers can access this service, while businesses will be charged $61 for the first year, with subsequent years costing $122 and $244, respectively.

[00:05:53] Microsoft emphasizes the importance of upgrading to Windows 11, which is only compatible with CPUs released from 2018 onward, as many existing PCs may not meet the stricter hardware requirements.

[00:06:04] Despite this push, Windows 10 continues to see strong usage, with an increase in upgrades noted among users.

[00:06:10] In August, Windows 11 briefly became the most popular operating system for PC gaming among Steam users, according to a survey by Steam, before dropping back behind Windows 10.

[00:06:21] Microsoft also has reopened its beta program for Windows 10, offering new features and improvements, despite its prior announcement of halting major updates.

[00:06:31] Why do we care?

[00:07:09] OpenAI has officially launched an AI-powered web search engine integrated into ChatGPT, now available for paid subscribers, with broader access rolling out for free enterprise and education users soon.

[00:07:21] The new feature allows real-time information retrieval during conversations, addressing a competitive gap with rivals like Microsoft and Google.

[00:07:30] ChatGPT showcased its capabilities in a demonstration by retrieving stock data and restaurant recommendations, utilizing a fine-tuned version of ChatGPT 4.0.

[00:07:40] With the launch, ChatGPT will also provide a clutter-free search experience without advertising, though free users will face usage limits.

[00:07:49] OpenAI has launched its advanced voice mode for ChatGPT on Mac OS and Windows, enhancing user interaction with the AI-powered voice assistant.

[00:07:58] This feature allows for more intuitive conversations as it can understand interruptions and respond to user emotions.

[00:08:05] Users can engage in longer dialogues with the assistant, making everyday tasks like chatting or playing trivia games more seamless.

[00:08:11] However, the desktop app still lacks multimodal capabilities, such as screen assistance and camera integration, with no release date announced for these features.

[00:08:21] Why do we care?

[00:08:23] OpenAI is positioning ChatGPT as a serious contender for both consumer and professional applications.

[00:08:29] I'll note that roughly 75% of their install base is consumers, which is also likely small businesses too.

[00:08:38] And time for some big ideas.

[00:08:41] A Polish radio station, off Radio Krakow, has transitioned to using AI hosts named Imi, Kuba and Alex in what it claims is an experiment to explore AI's societal impact.

[00:08:53] The decision follows the station's termination of several on-air talent, leading to a petition with over 20,000 signatures against the AI shift.

[00:09:02] Editor-in-chief Marcin Poulet insists that the fired staff were guest collaborators and that AI does not solely drive the change.

[00:09:10] He aims to investigate the implications of AI in media and journalism, emphasizing the project's temporary nature, expected to last no more than three months.

[00:09:19] This move comes amidst a broader restructuring of regional public radio stations in Poland, driven by financial pressures and political changes under the current government.

[00:09:29] In a recent discussion led by Gartner's Rita Salaam, experts highlighted the limitations of generative AI for enterprises, stating that it often lacks reliability and efficiency.

[00:09:40] Despite significant enthusiasm, with only 6% of organizations deferring investments, according to a Capgemini survey, generative AI may not be suitable for critical tasks like planning and decision-making.

[00:09:52] Organizations spent between $300,000 and $2.9 million on AI proof-of-concept phases in 2023, yet many generative AI projects failed to progress beyond initial stages.

[00:10:04] Salaam warns that the hype surrounding generative AI could lead to missed opportunities and increased risk of failure in AI projects.

[00:10:12] CIOs are urged to consider alternative AI methods and ensure human oversight in critical decision-making processes to avoid potential biases and disasters.

[00:10:22] And in a recent article by Tyler Austin Harper in The Atlantic, the impact of artificial intelligence on higher education, particularly in the humanities, is explored.

[00:10:31] Harper highlights a scene at Harberford College, where English majors express skepticism toward the prevalence of chat-GPT-assisted cheating.

[00:10:40] One student remarked,

[00:10:42] Chat doesn't write well anyway. It sucks.

[00:10:45] Emphasizing a commitment to the craft of writing.

[00:10:48] The discussion reflects a broader concern about maintaining academic integrity in an era of advanced technology,

[00:10:54] underscoring the power of robust honor codes and institutional resources to navigate these challenges.

[00:11:01] Why do we care?

[00:11:03] The big ideas section is to ponder big questions, so here are mine.

[00:11:07] How many more experiments will we see from businesses like the Polish radio station?

[00:11:12] And how much of all of this is hype, and how much is real-world implementation over generative AI?

[00:11:18] Figure that out, and you will be a winner.

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[00:12:20] Thanks for listening. Today is National Authors Day, National Cook for Your Pets Day, and National Calzone Day.

[00:12:27] But perhaps not calzones for pets.

[00:12:30] Tomorrow, the live show will drop into your podcast feed as my discussion with UK-based journalist Simon Quick

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[00:12:40] Sunday, you'll get a discussion with Dr. A. Keperdeep as we learn about neuro-AI and its implications.

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