How AI Is Reshaping the Tech Power Rankings with Rishi Jaluria
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Welcome to the Risk Reversal Podcast. I'm Dan Nathan. I'm joined by Rishi Jolaria. He's the Managing Director of Software Equity Research at RBC Capital Markets. Rishi, welcome back to the pod. Dan.

Dan, thanks so much for being here. Great to be here in person this time. All right. So last time we did it over Zoom. And that is a company in your coverage, by the way. Maybe we'll talk about that a little bit. I think I labeled you as the best-dressed man on Wall Street. Oh, thank you. There you go. Because you and I were out at the private tech conference at RBC last month. And I think that might have been the first time we met face-to-face. That's right, yes. And I was like, you are as well-dressed...

in person as you are on Zoom. You and I got a lot to talk about. The last time we spoke, at least on the podcast, it was right kind of in the meat of Q1 earnings. And there was a lot of, I don't know if I call it skepticism about what these companies were going to say going forward. And obviously Microsoft is the biggest company in your coverage and it's pretty unique relative to a lot of the other

enterprise software names. So we just got through Q1 earnings season. We heard a lot of guidance for Q2, and I'd love to get your takes on all that. I just definitely want to dig into what you think is going on as far as AI. We keep hearing agents and co-pilots and this and platform and all that sort of stuff. And so I want to get your takes on all that and what names are winning and losing some of the names that we're not so focused on every day. And then really, let's talk macro a little bit because tariffs trade, all that's been at the forefront, maybe less impactful for most of the names in your coverage. So we'll hit all that

All right, let's first things first. So you cover dozens of stocks. You have a team of people that work for you and you guys go all up and down from small cap, mid cap, large cap, and I'm sure you spend a lot of time on your large cap. This has never been, well, I haven't seen in a very long time a market that is this thematic.

Okay. And it happens to be right here in the front yard of her sheet right here. So let's talk a little bit about some of these broader things and how it's impacting your coverage in general. So maybe I'll start with the AI picture because I think that's really important. We can definitely touch on macro because that's been showing up and we started to see some cracks during this Q1 earnings season. So there's a lot to talk about in terms of macro, but let's start with AI.

And, you know, I think, look, the moment ChatGPT came out was a seminal moment. People started to recognize this is going to be huge. This is going to change the way we do things as a society forever, right? Just like the internet, just like mobile, just like cloud. This is like that. And, you know, someone who grew up in, you know,

in the 90s and was of age when the internet came out, saw this firsthand during that. So I would say now, as we really think about software, we can take this to the broader market. I think there's a lot of themes going on, but I think the biggest one that we're trying to figure out, and it changes by the day, is who's really going to win and lose out of this. But maybe more importantly, it's separating the theory from the practice.

because when we were first going through this exercise, we were saying, all right, who's well positioned? Who has data? Who has incumbency? And kind of ended the conversation there. And now we have to go five or 10 layers deeper. We have to start to say, who's actually innovating on this versus who's just bolting it on and calling it AI or doing agent washing? Who's actually finding net new use cases? Who's aligning themselves really well with customers? Are there companies that have entire functionality that can get displaced by AI?

And even when we start to think about the data, really how valuable is that data? Just saying you have data is one thing, but how is that data going to be used? How is the nature of the data that matters going to change? And these are all themes that are really coming up to the forefront, especially as the underlying technology evolves really quickly. And look, as you know from your background, investors can be very, very

fickle, right? And I think we've seen that play out with a lot of these names where people get a little bit disappointed that the monetization is not happening nearly as fast. - And you think that's way too early to make those sorts of assessments. - I think that's exactly right. - All right, so let's take a step back here because the first half of my career, I was on the buy side and I was trying to figure out things.

generally in a shorter term time horizon. You know, it really had a lot to do with sentiment, what expectations were. And, you know, there's this whole quarter by quarter thing. And I know a lot of companies do not like to manage investors quarter by quarter, but they have to give guidance and they have all these metrics they need to speak to and they better not miss them.

Right. That's our thing. So as an analyst, just give our listener, our viewer a little sense for what is the time frame that you feel most comfortable like looking at your space, thinking about broader themes and then kind of moving backwards? Because I don't get a sense from talking to you that you're one of these guys who wants to drill down on a day by day because that's a bit ephemeral.

I think that's exactly right. And I appreciate you asking that. Look, I try to take a 3, 5, 10 year viewpoint. And I think that's becoming incredibly more important when we think about AI, because this is going to take such a long time to play out, to turn into monetization and change models. And so we have to be willing to take that longer term focus.

especially for a lot of these names where you're making multi-year bets. You're making bets on what's the right technology for the right job, what really is going to get displays, what won't. And because of that, I try to take that super long-term focus. Don't get me wrong, the quarters matter. You've seen that during this earnings season where stocks are up 20%, down 20% on an earnings print. And by the way, it's a print that's maybe a little better than expected or a little bit more disappointing. These are not thesis-changing quarters.

but that's just the nature of the market we're in. So we have to pay attention to quarters, but I really think my specialty is in really understanding the underlying technology and kind of the longer term economic moats.

Yeah, it's funny that you mentioned a quarter that could change a thesis for an individual names. And usually it's not going to be one quarter. It's going to be kind of evident over a couple of quarters. And you're going to continue to see like slighter beats and then guide down. And then you'll see then finally you'll see a big miss of something that they already basically guided down to. And then they have to throw out the year. And then you kind of start thinking to yourself, what's going on here?

Well, let's start, you know, going back to you mentioned Chetchy PT comes out. Obviously, open AI, you know, was took a big investment from Microsoft. It was a billion, a billion. And then they did a big one. Right. Like and so a big part of that in late 22 and 23 were basically credits for open AI. Right. To train their model on on Azure. Right. And Microsoft's thinking about it. OK, we have some sort of exclusive to this technology. We should be able to kind of work it into some of our subscription products. Right. And

you know, it should be a great kind of upsell, if you will, right? So they were, what, trying to sell seats at 30 bucks a pop, and this really didn't happen until 2024. So back then, how were you thinking about a stock like Microsoft that had basically access to this technology, they had an installed base, if you want to call it that, they should be able to leverage, and then they had this cloud platform. Were you more focused on the cloud platform at the time, and how has that evolved? Because

We even did in 23, 24. You saw growth moderate in Azure, but then I think the story of late and why it's the largest market cap company in the world at the moment is because you saw a reacceleration in the Azure business. Yeah, that's exactly right. And to me, it was always all those pieces were really important. But what it came down to was innovation.

What I saw out of Microsoft is they not only were just resting on this open AI relationship, and by the way, even though they do almost all the training, none of that actually gets recognized as revenue on the Microsoft P&L. It's only the inferencing or you and I using ChatGPT or the APIs or any of the Microsoft AI products.

that gets recognized as revenue. So I think it's actually a pretty clean number that it doesn't feel to me like they're overselling or over inflating. But I think what was really important to me is they showed from an early stage, I mean, just the fact that they got involved in opening eye back in 2019 and really developed it and said, we're going to take chances. We're going to

infuse AI throughout the entire stack. I mean, Office Copilot is what gets the attention, but look what they did with GitHub and GitHub Copilot, bringing into Dynamics, they have a security Copilot. All of these in their current iteration won't become blockbusters, but I think a lot of them will. And they're going to continue to iterate, recognize where do they have opportunities to continue to come up with new features and capabilities based on customer feedback, and really leverage that forward-looking and forward-thinking leadership that they've had under Satya Nadella.

All right, let's break this down for a second because Azure, if you're just not kind of paying too much attention to this, is getting a lot of... I mean, that's one of the pillars of the bull case for Microsoft. And it has to do... A lot of the growth...

Didn't it happen away from AI in this last quarter or so when you think about Azure and the way it kind of reaccelerated? Because that's something I think maybe surprised some folks who are not drilling down as closely as you are. And then you talked about this technology and the co-pilot. There hasn't been a lot of uptick.

take there, right? So a lot of this revenue has to come from inferencing and the workloads that are basically on Azure, and that's how they get paid through OpenAI? That's right. That's right. And so, you know, again, the more you and I use ChatGPT, that's great on the inferencing side, GitHub Copilot, all that. But exactly as you pointed out, not only was AI better than expected in the quarter because they were able to get more capacity online, but the non-AI piece actually accelerated. And that accelerated

several quarters ahead of where people thought it would. And so that was really exciting to see out of Microsoft. And if I really drill down, why did that happen? I think to me, the biggest driver is actually Azure is gaining share in cloud. And it's because of what we've termed the AI halo effect.

That because they have this robust and innovative AI roadmap, it's actually helping them on the rest of the Azure business, whether it's core workloads migrating to the cloud. And then there's even a category in between that I call AI adjacent. Think about products like Microsoft Fabric, which helps your data estate come in order for these AI workloads. Cosmos DB for unstructured databases, which, by the way, is a foundation for chat GPT.

Synapse on the data warehousing side. The fact that they have all these kind of data products that they don't put in the AI bucket, but I think are important to driving AI usage and AI adoption. I think it's because of the combination of this entire portfolio that Microsoft was able to put up such a stellar quarter.

All right. So you've been covering this company for a long time. And I think this sort of innovation that you're talking about, this early investment in open AI going back to 2019, the kind of framework that they established to kind of, I guess, keep a really tight connection to this company. Like they had no idea whether this was going to blow up the way it did. Right. And so like.

when do you think that started to be realized? Because this is a company that wasn't really tied to innovation. I mean, Satya Nadella, I think for the most part, right? Like I think that, you know, the, the biggest, you know, rabbit that he pulled out of a hat and it was, it was Azure. You know what I mean? I don't think that was part of the bull story, you know, when he took over when 2014 or so. So,

Is this company truly innovative? And then how important is this open AI relationship that appears to be, I don't know if you call it fraying, it's a sunsetting for all intents and purposes. How important is that going forward for this idea that Microsoft is this newfound innovative company? - Look, I think you're exactly right. And I think it's really important that we actually started to see this innovation show up as soon as Satya took over, right?

Azure was kind of a smaller business, as you correctly pointed, was very much under the radar. But Satya was able to take that and basically become a very, very strong number two competitor to AWS. And that came from, obviously, execution, but also having the right architecture, having a fungible cloud infrastructure

that could work across everything, cloudifying all the existing apps they had, whether it's Office 365, Dynamics, everything below that as well. And then I think where I really started to appreciate Satya's innovation is what he did with M&A.

If you recall, I mean, they went and bought LinkedIn and, you know, that was for $26 billion. And I remember a lot of investors had a lot of skepticism and a lot of question marks. What are you doing buying this? And under Sethia's leadership, and Microsoft as a whole, was able to take LinkedIn from what was primarily a job

into now it's a sales tool and a marketing tool and an HR tool and even an education technology company all in one. By the way, no one even talks about LinkedIn, but it's been a slam dunk of an acquisition. Look what they've done with GitHub even before we think about GitHub Copilot.

And so we saw that innovation where Satya was able to actually make very intelligent acquisitions, but also the company was able to improve on them. And then I think GitHub Copilot was a fantastic example of where they were able to leverage that relationship with OpenAI and be early on the monetization train. I mean, now I use this example of if I'm a software developer and I don't use GitHub Copilot or a similar tool today, I'm the equivalent of a person using a typewriter when the personal computer is out there.

All right. So how's this story? Again, it's the largest market cap company in the world. Expected EPS and sales growth double digits. It trades at 35 times this year, 31 times next. Is that about right here? That's a slight premium to over the last five-year average, I would say. It seems like investors are not particularly that choosy when it comes to valuation and certainly some of these mega cap names that are in the catbird seat as it relates to the growth. And

But how does this story change? How does this go from as good as it can be with this amazing roadmap, these amazing partnerships, they're taking share in Azure, their non-AI reacceleration of growth is a big now part of this story.

How does it go out of favor with investors right now? Because it's clearly the one that everyone wants to be focused on here. Yeah, and to me, I think that would come down to if they start to lose that AI leadership. Because surprisingly, this is the first time Microsoft is actually playing from a leadership position since probably the 90s.

Right? I mean, they were second place with Azure and Cloud, second place when it came to gaming when they launched the Xbox. They've always been playing from behind. This is the first time they're actually playing from a leadership position. I think they need to keep that up, and I think that's going to be a combination of

of continue the open air relationship, although in a maybe different shape than what we're used to, as well as diversifying, maybe hedging their bets a little bit where you've actually seen they've built their applications, things like Office Copilot and GitHub Copilot to be LLM agnostic. So you have the ability to work them with LLMs from Lama, you know,

from Meta or DeepSeek or Anthropic or Gemini. And I think that's going to be the strategy of Microsoft going forward. Their preference is always going to be open AI, especially because that's where the innovation is happening. But they're always going to be kind of diversified and leave it up to the customer.

Okay, so the stock is back at all-time highs. One of the things that was really interesting about this stock in general is like, I think everyone agreed that Microsoft and some of this, you know, like we just went through this now for the last 10 minutes or so, just this relationship with OpenAI really differentiating themselves. And then if you looked at what Google was doing with BARD and then Gemini, it just, they could never get their act together, right? And there was a handful of,

of other models, whether it's Claude and, you know, this or but they're kind of out of sight, out of mind from a lot of public market investors. Right. So this is other than Nvidia. They accrued a lot of market cap because of that. And they obviously the valuation grew. But the stock

topped out last July. And then a lot of these other names that we just mentioned kind of played a little bit of a catch up, right? Google and Amazon and the like here. So, and Meta, obviously. What do you do with a stock here? And I know you have a price target that's, what, five and a quarter or something like that. It's 472 right here or whatever. It's back to those prior highs that had this huge run, I want to say from like 350 now to 470 off the April lows. You'd say, all right, we'll take the April lows out of there. It was trading at 420. So we're up 11% or something like

that. What do you do with it here? I think you buy more. Honestly, I know it sounds like a simple thing. And I always feel like a cop-out when I say, hey, my favorite name to buy is Microsoft, even right now, even at these levels. But to me, I truly believe they can capitalize on that AI leadership. And not only does this mean this helps on Azure share gains and everything, but once we start fast forwarding years down the line and we think about re-architecting software to be AI native for this AI first world, you think about the

net new revenue generation opportunities you get out of this, not just cost savings, the competitive advantages. This is software that you can price, I think, 2x to 3x higher than traditional cloud software, which by the way is the exact same thing that happened with cloud, right? When we had that migration to the cloud, it was 2x to 3x higher because you take all these infrastructure costs out. In this case, I think you take a lot out of

because you're able to generate so much more using these sort of AI tools. It might be on a consumption model, it might be subscription. We're all going to figure that out together. But once you start to get that force multiplier and Microsoft is able to maintain that leadership position, you're suddenly looking at meaningfully higher free cash flow at the end of the day. And that's really what matters to the startup.

All right. So that's why you have not minded these big CapEx numbers over the last couple of years. Again, you set the infrastructure in place, you get the customers on board with the capacity now that you have for compute. So you just mentioned, I want to say a bit earlier, you know, it was their capacity constraint. Right. And so when you think about that, you're now it went from you don't cover the name.

but you probably looked at it. Like CoreWeave is a good example. I mean, 70% of their revenue came from Microsoft, which actually shows you that they actually had so much demand, they had to go to a company like CoreWeave and say, how much capacity do you have? Like how many servers and how many data centers and all that sort of stuff? We'll take it, right? Like that sort of thing. So now, like when you think about that CapEx, are they close to being able to ratchet it down or is it going to continue to be an arms race for a while?

I think it's going to be, I mean, I think we can see the growth rate of CapEx start to moderate a little bit, but it's- And it has, right? Like dramatically. It's come down and I think it'll come down more. I think you're probably still going to look at somewhere in the neighborhood of 20% CapEx growth, even in next year, fully burdened CapEx. But what I would say on that point, right? You talked about the Cori relationship. They also have something similar with Oracle where they just don't have enough capacity. So they have to pay for all this excess capacity from Oracle Cloud Infrastructure as well. And by the way, one thing Microsoft has publicly

said, is they want to bring all that third-party capacity back in-house. So at some point, they will have to build out more capacity so they can control all that because it gives them better performance, better unit economics, and better control. And I think that's a direction we're going to see Microsoft go. So I don't think we're at peak CapEx at all, but I think they are going to be a lot more deliberate about...

which projects do they really want to invest in? And that's where I think you see some of the stuff fizzers between them and OpenAI, where Microsoft still has rights of first refusal, but there are certain bespoke projects that they're willing to walk away from. And I think others are happy to take that. A lot of strange bedfellows here. There was a story today that OpenAI is going to do a deal with Google

with Google Cloud, right? And so obviously OpenAI, almost every product that they built is coming after Google and their core competencies and their massive businesses. And it just shows you how much demand there is, right, for this compute, if you will. But and then you have Nvidia.

which has benefited from all of this, almost in every different kind of, you know, macination you could think of, and NVIDIA has benefited, and now NVIDIA is going to build out their own data centers and competing with their customers. Like, how do you think about that? Is this all getting a bit messy though?

I could see the core weaves go down first. I could see Oracle, which is only benefiting in my opinion from this AI adjacency. It's not like they have, you know what I mean? Any secret sauce going on. Totally agree. Totally agree. So that's that. Okay. And then you think about Nvidia. I mean, Satya said this and you and I probably talked about it on the last pod.

In the fall, I think he was on Gerstner and Gurley's podcast, he said, "We are no longer chip constrained," which means to some degree capacity, right? And then he said, "We're power constrained." So you want to talk about the power element here because you keep seeing these massive nuclear deals. Microsoft did one. I know Amazon did one. Amedda did one.

at some point, is this going to become a real problem? There's going to be a lot of demand. They're going to have this build out and maybe they can't power these big data centers. Absolutely. And I think what, what is the capacity constraint will continue to shift, right? At one point it was, it was GPUs. At another point, it was physical data centers, like the actual pouring of concrete on land. Now you have the, you know, uh,

power as an issue. At some point, it's going to be liquid cooling. At some point, it's literally just going to be space. There's always going to be, and we're always looking for new and innovative ways, right? Whether it's nuclear investment, whether it's literally space data centers, there's always ways to try. Space data centers. Yeah. Yeah. My wife works in space. There'll be underwater data centers because it takes a lot of water to cool. Exactly. Exactly. And maybe we'll build out some data centers in Antarctica. You never know. But I think it's, it's, it's great that we're always looking for new ways to,

meet this demand, right? And so I think that's what's going to keep happening over here for Microsoft. But you made a comment about kind of the strange bedfellows, and I think that's very accurate. Software has always been characterized by coopetition. I mean, there are so many companies that are customers of Microsoft that are also competitors of Microsoft and partners of Microsoft.

Same thing for Amazon, by the way, for that point. And so this is always how it's going to shake out. This is, I think, how AI is going to shake out, right? Whether it's at the hardware layer, the services layer, the software layer, the agentic layer, there's always going to be that layer of competition because I think in a very fragmented world, it's necessary to ultimately meet demand.

Yeah. Where are we? And I promise you, I'll move on. Where are we as far as Microsoft monetizing? You know, Akash, you just mentioned co-pilots and obviously GitHub is something that you seem to be very focused on. It's something that is an early adopted product because those are the folks that get this technology. Right. But the ones who might not be getting it yet are the large enterprises that Microsoft serves. When does that happen?

Yeah, look, I think it's already happening. So I'll say two things that I think are super interesting. Number one is even though it feels like a lot of the investment community has kind of written off Office Copilot, it's actually getting real traction. The product is getting meaningfully better. Customer feedback from the customers I've talked to is improving. And it's actually showing up in monetization. Now, Microsoft has always said slow and gradual and steady over time. But by my math, Office Copilot is somewhere in the neighborhood of $2 billion of ARR already, growing 300%.

So it's definitely not something I can write off. This is definitely a real growth driver, and it's really going to contribute to that office line. I think the other thing is we are seeing this kind of inflection in enterprise AI demand. This is a relatively recent trend over the past couple months, where it's not just kind of slow and steady. There's actually that big step function increase. And one thing that's really interesting, and you may have picked this up in some of the sessions at our private tech conference, is we're seeing AI demand outside of just technology and financial services.

We're seeing it in industrials, in retail, healthcare, food and beverages. And I think the reason behind that is now we're at the point that AI is being viewed as something that can drive real margin expansion. And that's really important in those industries where if a software company goes from 35% to 38% margins, no one really cares at the end of the day. It's all about growth and software. But if an industrial company can go from 7% to 10% margins,

That's massive. And so that's why I think we're seeing that adoption at kind of more traditional industries much faster than we would have expected. - All right, so your buyer here, your buyer on pullbacks, you think that this is one of the best position companies, remains one of the best position companies, especially as they see the uptake by a lot of their enterprise customers, which they're not really getting any credit for right now. - That's exactly right. - Okay, cool. All right, let's talk about AI adjacency. So I think it was maybe a few weeks ago you downgraded Salesforce.

And so just give us a little background. How long have you covered the company? How long did you have a buy on the company prior? And again, our listeners, myself, we don't really care about the ratings of stocks. A lot of times it's just sentiment. And I love to hear the reason why there's always got to be one or two good reasons why an analyst changes their rating on something. If you're downgrading it, you know you're going to piss off the IR or maybe some people at the company that you've actually had good relationships with. So what?

What's going on? What's your history with Salesforce and why the downgrade? Yeah, look, I've been positive on Salesforce for quite a while, right? Putting rating aside. And my own personal bias is I want Salesforce to do well, right? They are my hometown team. They are born and bred in San Francisco. They're the largest standalone SaaS company in the world. I want them to do well.

So it was not an easy decision to make, but I have to do my job. I have to be intellectually honest and hopefully do it in a very professional manner. And so the way I kind of think about this is, look, I had been positive on Salesforce because they were riding the digital transformation wave during COVID. That obviously showed up in their numbers. They were showing the ability to consolidate budget. And then you had this kind of new Salesforce that came out that was going to be disciplined. They weren't going to do large deals. They were focused on

they were going to focus on margin expansion, and they did that, right? They did that for years. Like we're at, you know, low 30s margins, and that's much higher than what we're used to. They hadn't done a large deal in almost five years. And so that's what kind of got me a little bit excited, even if I had maybe some worries around the edges, around agent force. You know, I think it's being marketed really well, but the underlying technology, I think there's still work for it to meet the promise of what we're seeing out there. But then comes along this informaticity.

deal, right? And I'm worried we might be seeing Salesforce kind of back to their old ways where it's, you know, more acquisitions, it's, you know, investing for the sake of growth, not on the innovation side. You hear Mark Benioff talking about hiring 2000 people. Look, I hope I'm wrong about this, but that's kind of my worry is, are we just going back to the way things are? And maybe it's just a time to just take a breather and wait and see what happens before getting involved again.

By the way, so going back to the old Salesforce ways is going back to the old Oracle ways, right? Like, I mean, you've been covering this space for a long time. And so when organic growth starts to slow, you go out and make some big deal and you talk about the cost saves and then write the cross selling and there's a whole host of things. So,

I look at this company though and I say it trades at a multiple to itself historically pretty cheap to many of its peers still expected double digit earnings growth and revenue growth that is nearly 10% or something like that. I mean, that's not a horrible profile here for a company where gross margins are what like they're near 80ish or something like that.

So what would cause you to kind of get back on the train? Because here's a stock, we have the NASDAQ almost back towards its prior highs. We just talked about Microsoft making new highs. This stock was trading over 360 bucks. This was in late January and here it is now

at 260 has not really been able to get back going. And it's so far from, I know you don't care about some of the stuff from its prior highs or whatever, but what it tells me is that a lot of investors are putting this in the penalty box, just as you have done too. Yeah, I think that's right. And part of the reason I think it's in the penalty box is because Asian force monetization has been slow. And, and, and, you know, kind of this gets back to how we started this conversation. AI monetization is going to take a really, really long time.

Even if Asian Force was exactly the way it's being marketed and a super innovative product, which it may eventually get there. I don't know the answer to that. But even if it was, it's not going to be billions of dollars of revenue right away. Like the adoption of this is going to be very, very slow. And I think that's also why you've seen the stock come down from those highs to where it's trading at today. I agree with you. It's not a demanding valuation at all.

It's definitely cheaper than it's historically been. You still have maybe a little bit of upside on margins. I just worry it is going to stay in the penalty box for at least the near term. And it's hard for me to say, all right, let's go own Salesforce when there maybe are other names that we can own that might outperform.

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All right, let's talk about Oracle. So this is a name that just, full disclosure, we're recording this Wednesday afternoon. It's 2.30 p.m. The company is going to be reporting, what, in two hours or something like that. So we have no idea what's going to happen here. But let's just talk about where your head's at. Let's assume the quarter's fine, the guidance is fine, that sort of thing. Stocks were on 50%, 120 to where it is right now, nearly $178. Its all-time high was $1.

late last year at $198. So, you know, it's not far away from those prior highs. The stock came back in a big way. And, you know, I think it's important just to kind of talk about the price action because we just talked about Salesforce, which has actually made up very little ground from its April lows and it's so much further from its all-time highs. What do you think the mood is with Oracle heading into this

print in general? And what would, I guess, disappoint you on the way out? I think it's enthusiasm, right? There's a lot of enthusiasm around OCI because, you know, we talked about all this AI demand and if it's continued to uptick and there's demand for excess capacity, that's good. But they don't have a lot of capacity. Isn't that correct? They just have a lot of GPUs.

Okay. Right. That's the thing is it's an NVIDIA's best interest for there to be as many competitors as possible, especially those that aren't going to come out with competitive chips, right? Microsoft's working on their own custom Silicon to compete with NVIDIA. Oracle's not going to do that. So it's in NVIDIA's best interest. So Oracle does have access to GPUs that others don't. And so I think

that is going to benefit them, right? I mean, you've seen they've signed large deals with Microsoft slash OpenAI. They're signed deals with Meta. Actually, there was a big bump in RPO last quarter, and you potentially have Stargate on the horizon. So I think if we see slowing down

in OCI where we see kind of RPO disappoint, that's where I think cracks could start to show. For me, that excess capacity tailwind isn't going away anytime soon. I think at a certain point it does, and that's where I have maybe a little bit of skepticism on Oracle is just how sustainable some of these drivers that they've seen behind OCI have been. But there's probably enough juice for it to last for another year or two.

All right, so if OCI is between, I'm just kind of looking at some numbers, between 15 and 20% of their total sales. So is that like what we've been focused on with Azure, like in many, many quarters with Amazon and AWS? Is that growth important? It's coming off a low base on a relative basis. We're talking, you know, single digits.

billions in revenue, right? That's exactly right. I think the Azure analogy is very apt that OCI growth is really what just drives the stock on a quarter-to-quarter basis, even though it is not a majority of the business, because that's what the narrative is. The narrative is Oracle Cloud Infrastructure is a share gainer. They're growing 50% plus in terms of revenue, yes, off a smaller base, but they're growing faster than the others. And can they effectively be the fourth cloud?

That's the whole debate. That's the bull case behind Oracle and why the stock's trading where it is today. All right. So we just talked about AI adjacency. What are some names in your coverage that you think are underappreciated relative to the opportunity that they have? Because here we are mid 2025. We're almost three years into this generative AI trade. There's been a couple dozen kind of clear winners. There's some who've kind of gotten here late to the game. And that's investors trying to broaden out this theme a little bit. What are some names that...

you think have not been uncovered yet? Yeah, I'd say there's two and I'll give a quick pitch on each. One is HubSpot. To me, they're almost the anti-Salesforce. It's all organic. They're kind of in the same areas as CRM. And I really like their roadmap out of AI. And so do their customers and partners that I've talked to.

And so I think that's going to help them continue to be share gainers in CRM. I can see them continue to move up market, maybe at a certain point, maybe five years from now, actually start to be competitive with Salesforce. And I think they have a lot of innovation in AI. And then I would say the other one is MongoDB. And MongoDB is a stock that's in the penalty box. I know they just had a good quarter, but in general, it's been in the penalty box.

And there's worries around competition, around really, you know, can they have a place in an AI world? And to me, I think MongoDB can be one of the tools that is the foundational layer for net new generative AI applications, especially those leveraging unstructured data. That tailwind has yet to really emerge in a big way. But as these AI native companies start to become hundreds of millions of dollars of ARR, that drives a lot of consumption of MongoDB. And I think we can see this business accelerate. It feels very underappreciated to me.

Okay, we talked about Oracle and their need or their want to do as far as M&A. Are there some names, like for instance, I look at like a MongoDB, this is a $17 billion market cap. Are there names in your space that you think, and again, I know this is not your area,

your main game here, but like, are there names that you think you could see in a better regulatory environment right now? You know, HubSpot's 30 billion. We just talked to 10 years ago, Microsoft paid $26 billion for LinkedIn. Are we going to see some M&A? I think we will. I think we're going to see a lot of M&A emerge. And, you know, to your point, I think MongoDB would be an amazing asset for a lot of companies to acquire. I think HubSpot would be, and you remember,

Google was actually really interested in them and likely walked away because of antitrust concerns. So I do think there are a number of these, you know, in maybe a lighter regulatory environment. The one concern I would have about software M&A is, is there going to be maybe an acceleration in AI native M&A that's going to crowd out some of this? And so I think about like ServiceNow buying MoveWorks, right? MoveWorks, fantastic company. ServiceNow got them, right? And that's now $3 billion they're not going to spend on other assets.

And so that's the only thing I can think of is like, will there be more focus on AI pure plays rather than investing in kind of traditional strategic software M&A?

So you just used that expression co-op, what was it? Co-opetition. All right, co-opetition. For some reason I can't say that. You know, Google, I think it was a few months ago, they made this proposed acquisition of Wiz, $32 billion. And when you think about the reason for that is like GCP is what, a number three in the cloud space. And so this is a security company that helps customers track their workloads across all the different clouds.

Is that a theme that you're going to continue to see? Because we just talked about that a little bit with OpenAI, I guess. Yeah, I think that's exactly right. I think I think this hits on two different themes. Number one is just more and more customers are going to go multi-cloud. And how do you have the right infrastructure and everything to make sure that that works? I think the second thing is, well, you're migrating to the cloud. How do you secure in the cloud as well? Right. And that's been something that's actually helped Microsoft. They actually, if you look at their security revenue, are probably one of the largest security companies in the entire world. Again,

No one talks about it because Microsoft is such a big company. But I think Google recognizes that, that there's a big opportunity to not only host those cloud workloads, but also really secure them so people feel comfortable. And maybe that leads to an uptake of enterprise cloud demand as well. What happens to a company like Zoom?

Right? So you look at this, it's got this tiny enterprise value-ish, you know what I mean? So it's got a good balance sheet. They got a lot of cash. You know, they still make a lot of money, right? We still Zoom every day. Doesn't this seem like this would be a good little tuck-in acquisition? I know the stock's rallied a little bit off the lows, but

Are we going to like a Cisco or something like that? I'm just curious. Do they still have WebEx? They do. Unfortunately, we're a WebEx customer. No, are you really? Okay. Would you prefer Zoom? No. I'm just curious. How do you think about a name like that? Yeah, I would say Zoom can go one of two ways, right? Number one is exactly what you said. Does someone buy them? There's great technology, good customer base, et cetera. I think the second thing is can they cross the chasm?

You know, I think it's pretty apparent to everyone that the entire video conferencing team has been pulled forward with COVID, right? There aren't many enterprises who don't have a video conferencing solution out there. And so next, the question we have to say is, can Zoom become this broader enterprise collaboration and communication platform, right? They have Zoom Phone. That's still relatively small. You've got Zoom Contact Center. They've gone into all these other areas like whiteboarding and real-time messaging and the like. Can they do that?

combine all of that and now layer in this AI first strategy, which I'm sure you know they hired the former Azure AI CTO, XT Huang, who I think is actually a super interesting and impressive person. If they can actually cross that chasm, become a true multi-product company and start to actually leverage AI, especially given all the unstructured data flowing through the platform,

we might be talking about Zoom as a very different business, as a more innovative company, as one that's actually maintaining, even if it's high single digit growth, just a very different financial profile than what we're looking at today. - Yeah, the problem is EPS growth is basically flat, or sales growth is expected low single digits. But, you know, here's, like I said, it's got a $24 billion market cap and more than $7 billion in cash.

And no debt. So like who what what sort of like profile, you know, 78% gross margins? Who would that be accretive to? Like right out of the gate? You know, I'm just like it seems like a layup. I mean, even if we talk about like an Oracle or a Salesforce or even when you throw an IBM in there.

Yeah, I think that's exactly right. And you mentioned Cisco, which bought WebEx, which by the way, Eric, that was a very early employee slash co-founder of that company. So absolutely, I think there's a lot of companies for whom this would be accretive. It would give them a lot of cross-sell opportunities and financially would just make a ton of sense.

All right. Last thing, and I promise we'll get out of here. I know you're busy. You got Oracle coming out really soon. Macro. So, you know, here's a day that is supposedly we have some sort of framework for a deal with China. There's no there there. Let's be clear. OK, but if that kind of tamps down some of the fears that a lot of these companies are dealing with, you know, as far as, you know, enterprise budgets are probably being halted a little bit, that sort of thing.

Flip side of that is maybe this kind of leads the way for some sort of extension of the tax cuts. And that's something that corporates are going to like here. Maybe the inflation coming down and some of the fears about a recession kind of go away. How does this impact your coverage in general?

Yeah, look, I think it's interesting, right? Because the software index, the IGV, which is what we track, is basically near all-time highs right now. And that's in spite of the fact that we don't know how this is all going to shake out. And this is uncertainty. And uncertainty is never good for software. Even if software is relatively tariff-proof, because you can't actually tariff software as a service,

Anything that adds uncertainty means that you're going to have greater deal scrutiny, longer sales cycles. And I think initially we kind of thought that this wasn't really happening because there was also some pull forward of business that offset any slip deals. But now in kind of my checks, especially with private companies, we are seeing that kind of uncertainty impact. And even if it only goes on two, three months,

two or three months of softer bookings mean that 2026 numbers may actually have to come down. So I'm worried that there might just be a little too much complacency across the board, and that's why I think this is a stock picker's market. - All right, Rishi, you're a great stock picker. I appreciate you being here. I wish I was a better stock picker, but I get smarter with guys like you in here, so I really appreciate you being here. - Thank you so much.