Platformonomics TGIF #78: January 31, 2025

Platformonomics TGIF is a weekly roll-up of links, comments on those links, and perhaps a little too much tugging on my favorite threads.

News

Meta CAPEX – Q4 2024

$14.84 billion for Q4 (+88%), $39.23 billion for the year (+40%).

Guidance:

We anticipate our full year 2025 capital expenditures will be in the range of $60-65 billion. We expect capital expenditures growth in 2025 will be driven by increased investment to support both our generative AI efforts and core business. The majority of our capital expenditures in 2025 will continue to be directed to our core business.

Gentrifying Manhattan with a data center:

These are all big investments — especially the hundreds of billions of dollars that we will invest in AI infrastructure over the long term. I announced last week that we expect to bring online almost 1GW of capacity this year, and we’re building a 2GW and potentially bigger AI datacenter that is so big that it’ll cover a significant part of Manhattan if it were placed there.

Who thought that was a good speaking point? 😂😂😂

Depreciation:

In January 2025, we completed an assessment of the useful lives of certain servers and network assets, which resulted in an increase in
their estimated useful life to 5.5 years, effective beginning fiscal year 2025. Based on the servers and network assets placed in service as of
December 31, 2024, we expect this change in accounting estimate will reduce our full year 2025 depreciation expense by approximately
$2.9 billion. This is factored into our outlook.

Best new cash flow statement line: “data center assets abandonment“

Previous:

Meta CAPEX – Q3 2024, Q2 Meta CAPEX, Q1 Meta CAPEX

Related:

Meta to spend up to $65 billion this year to power AI goals, Zuckerberg says

Microsoft CAPEX – Q4 2024

$22.6 billion for the quarter (+97%), $75.60 billion for calendar 2024 (+83%).

Commentary:

We have more than doubled our overall data center capacity in the last three years. And we have added more capacity last year than any other year in our history.

Capital expenditures including finance leases were $22.6 billion, in line with expectations, and cash paid for P, P, and E was $15.8 billion. More than half of our cloud and AI related spend was on long-lived assets that will support monetization over the next 15 years and beyond. The remaining cloud and

AI spend was primarily for servers, both CPUs and GPUs, to serve customers based on demand signals including our customer contracted backlog.

And while we expect to be AI capacity constrained in Q3, by the end of FY25 we should be roughly in line with near-term demand given our significant capital investments.

And when I talk about being at a capacity constraint, it takes two things. You have to have a space, which I generally call long-lived assets. That’s the infrastructure and the land. And then you have to have kits. We’re continuing, and you’ve seen that’s why our spend has pivoted this way to be in the long-lived investment. We have been short power and space. And so, as you see, those investments land that we’ve made over the past three years, we get closer to that balance by the end of this year.

And so, that’s the fleet physics we are managing. And also, remember, you don’t want to buy too much of anything at one time because of the Moore’s Law every year is going to give you 2x. Your optimization is going to give you 10x. You want to continuously upgrade the fleet, modernize the fleet, age the fleet, and at the end of the day, have the right ratio of modernization and demand-driven monetization to what you think of as the training expense.

And so, the investment you see us making CapEx, you’re right. The frontend has been this infrastructure build that lets us really catch up, not just on the AI infrastructure we needed – think about that as the building itself, data centers – but also some of the catch up we needed to do on the commercial cloud side. And then you’ll see the pivot to more CPU and GPU, and that pivot will more directly correlate to revenue. And it’ll be contracted either with the partnership that you asked about with OpenAI or with others.

And so, I do think the way I want everyone to internalize it is that the CapEx growth is going through that cycle pivot, which is far more correlated to customer contract delivery, no matter who the end customer is.

Guidance:

Next, capital expenditures. We expect quarterly spend in Q3 and Q4 to remain at similar levels as our Q2 spend. In FY26, we expect to continue investing against strong demand signals including customer contracted backlog we need to deliver against across the entirety of our Microsoft Cloud. However, the growth rate will be lower than FY25 and the mix of spend will begin to shift back to short-lived assets which are more correlated to revenue growth. As a reminder, our long-lived infrastructure investments are fungible, enabling us to remain agile as we meet customer demand globally across our Microsoft Cloud including AI workloads. As always, there can be quarterly spend variability from cloud infrastructure buildouts and the timing of delivery of finance leases.

Looks like Microsoft disembarked from the OpenAI CAPEX train to infinity and gave up its seat to Softbank.

Monday’s Market Meltdown

Was caused by:

1.) Jim Cramer?

2.) The Khakiocracy?

3.) Stargate?

4.) Wall Street just weeks late to discovering DeepSeek?

Let a Million Shitcoins Bloom. A Week.

I am sure this will end well!

Good thing the White House has a Shitcoin Czar!

The Agentic Abyss of Disillusionment

When agentic-ness plunges into an abyss of disillusionment, due to rampant over-promising and under-delivering, no one will get more credit than Amway Salesforce CEO Marc Benioff.

Antitrust Incoherence: New Administration, Continuity of Incoherence

Is HPE the new face of “Big Tech”? Is HPE is our poster child for what happens when you fail to kowtow to the new administration? Is it too much to ask for a coherent antitrust doctrine?

ClownWatch™: IBM Q4 2024

IBM: “blah, blah, AI, blah, blah, AI”

Also IBM: 2024 CAPEX down 24%.

Microsoft invests more in under six days than IBM does in a year.

Checking in on the IBM narrative front:

• “IBM is returning to growth” – 3% annual growth (inflation was 2.9% in 2024). I particularly enjoyed “z16 our most successful program in history” with revenue down 3%.
• “IBM consulting momentum” – IBM is a consulting company, yet consulting revenue was down 2%.
• “IBM, something, something, AI” – rounding error CAPEX, no products (except Watson 😂😂😂).

Existential Corner: EU Agrees It Faces ‘Existential Crisis’

Acknowledging your existential crisis is the first step. But what are the odds the Europeans will do anything about it?

Where Was the EU This Week?