Search advertising could peak in Q1 as agents change buying

Transcript

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

1. 18:58

   I mean, how many people are even smart enough to use the smartest models anymore? You know, let's be real. Like Anthropic just released a prompting guide where they're like, you're being too complicated on prompting. These models can do whatever. And now it's basically become around, you either use the models to do day-to-day normal work and they become very capable and very consistent, or you want a swarm of 1,000 or 10,000 of them and the capability to swarm them to solve the most complex work.

2. 19:22

   And there's not much in between. So I think the focus on the frontier, as you said, there's better models inside OpenAI and kind of other things, is starting to miss the point a bit. What really matters is, is it in front of people? Google announced Gemini Spark. What's Gemini Spark, everyone says. Well, remember, it's the moment to be their personal assistant. But why is nobody using that versus Dots or GrokBot, which now has a million users and things like that?

3. 19:48

   And this is the flip side and the dangerous side, because Google and Meta, if they don't have the AI that's closest to you, that's buying your things, that hits their main business. In fact, I'm going to make a call here. I think search advertising will top as an industry in Q1. And that will be the big now. It will top. And that's a really, really gutsy call. I appreciate it. I cannot disagree. It is falsifiable, which is awesome.

4. 20:16

   But, yeah, that's brilliant. let's see i'm proud that you put that out there i mean google and meta yeah google and meta have been literally look at it it's growing way faster than gdp every single year but next year and i think it'll be as soon as q1 if that tops out that structural growth in advertising because people are buying via their agents their agents are doing seo what's google's business model what's meta's business model like now google has to think well maybe we get astro teller and launch 10 companies a year or 20 companies a year, right? Because now it's time to diversify.

5. 20:52

   GCP, obviously. I mean, so if you look at, I don't want to front run the stories here, Peter, but if you look at the revenue mix from Google in their, or Alphabet in their last quarterly, it's so obviously transitioning away from becoming a search advertising company to becoming a hyperscaler cloud company. And so I think Google probably, if this trend continues, regardless of what happens with search advertising.

6. 21:15

   Search advertising is on a trajectory in the next year or two to become their second largest business, not even their largest business, and they'll just care less. Yeah, I've been saying this for years. There's no way that advertising to a human is going to be the way any of this does, right? Your AI is going to know exactly what the best products are, what you're using, what's right for your genome, what's right for your schedule for the next three days, and they'll buy it for you.

7. 21:42

   Humans are just there to be hacked. Just to flesh out that story. So GCP is growing like crazy. The margins, though, are higher on search advertising. So it's a little misleading. But, you know, to say that, you know, they're fine because GCP is growing so quickly. You know, if Ahmad is right and search tops out in Q1, there is a gap of about a year in there where the search revenue is declining while the GCP margins have not caught up yet.

8. 22:16

   But, you know, if you look beyond that, they're in a phenomenal position. The other thing, though, is GCP is growing on the back of TSMC manufacturing, which is completely and totally sold out. Demand is multiples higher than they can produce. And so the way that GCP can win is by getting more TSMC capacity. That's not a given. I don't know how TSMC is deciding what to make between Apple, Google, NVIDIA, and all other.

9. 22:44

   And SpaceX. They're not doing it on price. In a rational market, they just raise the prices, but they're not doing that. So it's all politics. It's very, very smoky backroom mirrors right now. It's very hard to know exactly what's going on there. But that's the linchpin. And the TerraFab will ultimately come online and make that a balanced world. But right now, it's completely out of balance. Two-thirds of all real chips that matter are made by TSMC.

10. 23:10

    So it's a very, very odd, very fragile world we're in. It's also worth remembering, Google has such diversified holdings, right? They're a huge holder in SpaceX, in isomorphic labs, in all of DeepMind's other projects. They're not going to be hurting for some time. Wall Street is fickle. You know, the question I've got in all this is... Google earns 14% of Anthropic. They're riding all the curves.

11. 23:35

    Isn't that wild? Yeah, they're just everywhere. And very quietly, you know, they have antitrust action all over them. So it's very easy to say, well, Google doesn't seem to be doing much. They're trying like crazy to make it less obvious how powerful they really are because of the antitrust action. That is ongoing right now. There's multi, could be $100 billion settlements related to this antitrust action.

12. 23:57

    So they have every reason to stay off the radar, quietly build the smartest AI the world has ever known, and the whole tech stack underneath it.