Google justifies AI spending with demand and capability signals

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 22:51

   And there was a big moment over the summer where you all went cash flow negative for the first time since the company IPO'd. And I think a lot of people in Wall Street- Free cash flow, not operating. Yes, of course. And people saw that and go, wow, Google's continuing to invest more aggressively. I think you guided up CapEx for 2027. You're thinking about 2028, 2029. what are you seeing that's giving you the resolve, especially the moment in the summer where Google goes negative on free cash flow?

2. 23:21

   I assume that was a big decision. And how do you think about that and what is giving you that resolve? The strength and durability of the demand signals we are seeing. So it's probably, you know, to do something like this, you need to be confident at multiple levels. One is, I think we are fortunate to have early signals from such a diversified opportunity set, right, you know, all the way from consumer to enterprise. And so we are seeing that robust demand signals.

3. 23:53

   You probably have more signal than any company on earth, actually. I haven't thought about it that way, but you could arguably make a case for it. So, you have the robust demand signals. We have the demand signal for Google itself, which is a cutting-edge enterprise of how we are using AI and adopting it. And you're seeing the capability frontier. Then you're able to independently, outside of the demand signal, in some objective way, actually assess the capability frontier and see how it's progressing, right?

4. 24:22

   And seeing how that curve looks like, and be the scaling loss or like how our new models are doing compared to our old models, the complexity of tasks we are able to tackle, our internal evals and benchmarks, and so on. So you're getting a first-hand sense of it. You're also getting a sense of the breakthroughs from research, which give you a sense of, okay, will Gemini 5.0 be much better than where for Argonne is? And the answer is yes. So you're getting all those confidence signals across that layer of the stack. And we also have durable long-term contracts with committed revenue, which we are signing. So it's not just hope, right? You're planning to book of business as well. So you take all that into account and you lean in in a responsible, disciplined way, which is what we are doing.

5. 25:19

   It's interesting to hear you talk with confidence about those signals, which obviously I believe. And then I think people are also trying to grapple with, for example, like Core Reave was the latest one, but there's fears about the neoclouds. There's fears about the financing of these things, the brittleness of it. When you look out there, even beyond Google, but Google's involved in a lot of these things, do you sense anything that gives you worry about a near term, and not even Google-specific, but just that the market's maybe over its skis?

6. 25:50

   Look, I was obviously answering the earlier question from a Google standpoint, right, like looking at it, et cetera. You know, the broader market, I mean, you have any time you work through these moments where the opportunity is, you know, massive and the rewards are high and you have a lot of players coming in, you are going to have dynamism and volatility associated with that. And I think that is an inherent part of a moment like that.

7. 26:14

   This is why I try to focus very hard on that signals, which I have control over and I can see, right? And the demand signals, the business clear line of sight to the business opportunities we have in terms of contracts, backlogs, and so on. And you plan for that, right? And I think you design the company in a way in which you can work through moments where even if there's some variation, the long-term arc of it is good for the company, right?

8. 26:43

   And so that's why your ability to take a long-term view helps. And even if you look through the last five years, the pandemic drove a big shift towards digital. Then some of it corrected. But it made sense to invest to drive that shift forward for most companies, which did so, have done better, right? So you have to understand long-term secular trends and invest to capture the transition. In fact, we invested a lot of our headcount growth as a company through those years was for Google Cloud.

9. 27:19

   And we are benefiting on the other side of having scaled up. We were relatively later to the cloud market, but we took a very aggressive investment posture into that for a period of six to eight years. and that helps us through a moment like that. I think that's how I think about the AI moment as well. Can you look out anywhere in the future and see where you're not compute constrained right now? Is there any moment in time you can look out and see?

10. 27:53

    I hesitate to answer that way because... Yeah, you got to be careful because everyone will freak out if it's like... No, what I mean is it's more that, you know, we live in a moment in time in which the global economy is so intermingled in such complex ways and you can have the butterfly effect of like some, you know, one incident which can have ripple effects everywhere, right? And so I'm trying to decouple two things. I'm not saying from now on everything will be a smooth, no, you know, life doesn't work that way, right? You know, economies grow, there are hiccups we work through, there are business cycles, all that are inevitable parts of how the world works.

11. 28:37

    Right. And I think no one thinks this is like the past bubble, like this is not fiber, right? We're using all this. We're using all this. We are super constrained. And more importantly, we're using it for real today in practical value deriving ways. And we see opportunities We see clear line of sight in which all of this will work better in the future. But that doesn't mean as a collective industry or an economy, you overshoot or you have shocks to the system, which are out of your control and all that.

12. 29:11

    So those are two separate things, right? Which is why part of it is I focus on the things that are in our control, our ability to take a long-term view, take our years of experience to better forecast, better model, better invest, and apply to this wide opportunity set we have in a pretty disciplined way. And so I put my energy, time, and attention into that