Talking Apple, Broadcom, Adobe, Oracle, Enterprise SaaS, Six Five Summit

By Patrick Moorhead - June 17, 2024

On this episode of The Six Five Webcast, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The handpicked topics for this week are:

  1. Apple WWDC 2024
  2. Broadcom Q2FY24 Earnings
  3. Adobe Q2FY24 Earnings
  4. Oracle Q4FY24 Earnings
  5. Enterprise SaaS Reset or Pause?
  6. Six Five Summit 2024 Wrap

For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.

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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.

Transcript:

Patrick Moorhead: We are back for our Six Five weekly podcast. Dan and I are in the same country, in the… Ooh, that’s easy for me to say. In the right time zone. Dan just landed from Spain, but he is here, he is committed, and it’s been four days since our last podcast. We are trying to make up for the sins of the past of missing a few weeks due to my travel primarily. But-

Daniel Newman: It’s all your fault, dude.

Patrick Moorhead: It is. And whenever good things happen, it’s you. And whenever bad things happen, it’s me. It’s kind of like my marriage.

Daniel Newman: Hey, let’s talk about this real quickly because first of all, well played by the way, Monday we did our pod. You and I committed. You’d just come back from vacay. I was on the road, but we still got it in right ahead of, I don’t know, our massive Six Five Summit. Huge success. And I might’ve, at one point, forgotten what topic we were on. I mean that happens sometimes, but you came back and you were on fire, you did a good job. But we love this community so much. We’re like, “Let’s do sixty-something sessions in our summit this week and then let’s still get on Friday and do it again.”

Patrick Moorhead: Totally. Yeah. And we are going to talk a little bit about that, by the way. So, what are we talking about today? We have Apple’s WWDC, we have Broadcom, Adobe, Oracle earnings. Dan, you sent out some pretty provocative Tweets about enterprise SaaS. Is it a reset? Pause? I think I even heard maybe Chamath say it was dead. I don’t want to misquote him here, but just seeing a lot of talk about that. And we’re going to do a Six Five Summit 2024 wrap. It wrapped yesterday. We’re feeling really good about the content that we were able to provide to our audiences and we love our sponsors. So, let’s dive in. Daniel, you love Apple. I’m calling your number on this Apple WWDC. What happened?

Daniel Newman: Yeah, just a quick for everybody out there because we’re going to talk about a bunch of public companies this week and stocks and influence on markets. Not financial advice, at least mine’s not. I mean Pat, maybe you should take his as. No?

Patrick Moorhead: Listen, I’ll say it again. If you saw my portfolio, you would definitely not want to follow me. I don’t directly trade in any tech stocks because I don’t want to get too close to the flames.

Daniel Newman: Yeah, well we have too much… Anyway, all right. So Apple, look, there is way too much to try to talk about in a Six Five. So I want to talk about the big, hairy, audacious conversations. They’re not goals, in this case, of what’s going on at Apple. So the moment the buildup to this thing was that WWDC is going to be the moment that Apple comes out with its ground-breaking, earth-shaking AI strategy. And the question was, all the preamble that I had, the press, the media, the conversations, the background I was doing is what’s going to be success for Apple at this year’s WWDC?

Let me tell you what I thought. What I thought was going to be success was that Apple was going to announce its whole, “We’re going to build the Apple AI LLM. It’s going to be based on our ethos. It’s going to be using our security and privacy. It’s going to be different, better, and if you are in the Apple ecosystem, we are going to be lights out. We are going to be high fidelity. And it’s going to work seamlessly across the Apple ecosystem and it’s going to be the best platform on the planet for developers to build apps.” So that’s a lot. The expectations were high, but remember, they were super duper late coming out. Really, again, this is kind of a two-sided story. Apple’s had AI and its cores for a long time. It’s done AI stuff on its devices for some time, not necessarily all generative stuff. I mean Siri is blown for a long time and that was part of the whole expecting awesome was that Siri needed a refresh and it needed to be awesome.

So, did we get that? Eh. So, as I was reading through the Twitters and I was kind of coming out, I think what we got is two-sided. So I came out and I kind of came out and I’m like, I thought it sucked. I thought the whole thing kind of sucked and I think I had to look at it through two lenses. I want to get to this kind of brief because this could be a long conversation. The two lenses is Tim Cook did the best impression of Tim Cook I’ve ever seen him do. There was no Steve Jobs in this launch. It was all Tim Cook. It was incremental. It was meaningful for its current user base. It was sticky that customers are going to feel the need to stay with Apple. There was a lot of usability in the basic apps and functionality. There was a little bit of an improvement, there was some consistency in its security narrative.

And in the end, it was basically Apple was going to do Co-pilot on phones. That’s kind what I felt like the launch was. Some of its apps get more gains, some productivity, some capabilities all within the Apple model. So there is an Apple intelligence thing that is Apple’s own models. They didn’t really communicate that all that well. But then the ultimate puke moment for me was just in the end when it came to the, well, and if you need it to do the cool big stuff that other people are doing on LLMs, you can use OpenAI, which we are going to embed into our OS or kind of deeply embed into our system for everything that doesn’t live within the Apple AI, Apple intelligence ecosystem, which to me created this huge mental dissonance, Pat.

Because I was going in between this, you have this security privacy ethos which you just banged on for the first 90 minutes of your event and then you basically say, but then we’re going to open it up to the most controversial open, large language model that has been completely opaque in its data and its training utilization and you’re going to embed it in your core to enable people, again, to opt in, so you don’t have to use it. I want to be clear, I’m not saying you have to, but if you want to use it in a way that you’re using Perplexity, Google, OpenAI or any of these other large models that are internet wide, you have to now give your data to OpenAI.

Last thought, Apple’s not paying for this. So it’s a revenue neutral thing and that was super interesting to me because what it means to me is that OpenAI is like, “We want the data. We want the provenance, the pedigree that comes with being embedded into Apple.” Probably why they chose OpenAI over Google in the end. And interestingly enough though, huge win for Microsoft because now Apple is basically funding something that’s almost half owned by Microsoft and that’s just another way Microsoft’s strength gets teeth into things. So Pat, I could talk for a long time about this, it was just okay, but it will drive the cycle. I do believe that. And so I’m kind of beating myself up because in the end, they did enough, I just wasn’t inspired.

Patrick Moorhead: Yeah. So, I want to talk about what I had said moving up to this and some people tell me I’m negative on Apple and I’m not negative on Apple, I just expect a whole lot from them. And I was basically doing consumer devices 30 years ago and I think that they have to be held to a different standard. So what I did say about Apple, and this was probably a year ago, is that I’ve been calling an AI smartphone super cycle forever with the caveat that Apple, Samsung, and Android don’t screw it up. So what did I mean by that?

First of all, super cycle doesn’t mean that everybody goes out and replaces their phones. It might mean you take a four-year replacement cycle and shave off six months. That is what that was. So if I look at what I expected versus what happened, I measured it on three different things. First of all, them delivering a radical experience improvement to incent quicker upgrades and what we saw in the stock market isn’t necessarily indicative of what’s going to happen.

On one side, here you had two sides of the conversation, I think I might even have three, which was A, they had to come out with something that would super motivate end users to replace other phones, B, they had to do something that was super provocative, maybe doing something that was even bigger than 4.0 and all the experiences that we saw on that. But I do get it, right? I was ex-product guy, huge install base, big penalty for screwing it up, and quite frankly a low likelihood of people switching if they don’t change the world overnight. So, I think for the stock market, they did what they had to do to get it across. I was really surprised they didn’t have an upcharge for some super service.

On the cost competitiveness front, which on-device AI was really repopularized by Qualcomm recently. And Apple talked a lot about privacy and the experiences and things, they didn’t talk about the cost savings of it versus doing it in the cloud. But, by the way, I talked about this over a year ago. I said Apple would create its own servers with its own server chips. I have an analyst said that I was wrong, I was-

Daniel Newman: Your own analysts? Or other people’s analysts?

Patrick Moorhead: Other analyst firms. And what Apple said was, “Hey, if we don’t have enough compute on ours, go to this private cloud computing,” which is essentially, and we don’t know the details on this, is it Apple hosted? Is it a co-location? Is it somewhere at Google? They didn’t talk about the data center configuration, the location, the rack, the server, the interconnects, the chips. Maybe that’s a TBD. And I had a really smart person ask me, “Hey, why does Apple have to do that?” Well you know what? Apple is essentially getting into what AWS, Google Cloud, and Azure are doing and they will be held to a very different standard.

So for instance, do they have the full chain of custody with APC? AWS and all the hyperscalers have hundreds of security certifications. Where are Apple’s security certifications for their cloud-based services? And I’m wondering too, why can’t users opt out of this cloud of PCC if they want? It seems like they should. I got some play on social media that said, “Hey, they probably will make it an option, but it’s just they’re not saying that right now.”

So, Android with Samsung has the ability to not have any… Thank you, lawnmower. Not to have any data move up there and recall. And yeah, I’m very current on what’s going on there. Recall doesn’t communicate with the cloud. So I think Apple should probably do this. And one thing that’s kind of like the final thing I’ll say is what’s kind of grating on me, if 99% of Apple intelligence is running on eternal models, why do you need to use ChatGPT at all? It’s not like those internal models can be dumb and they can’t comprehend any of the outside world.

So that was really confusing to me on that. So we’re going to be talking about this for a long time, Dan, you and I. Really, it was a TBD on when it’s actually coming out, but hey, let’s dive into the next topic here and that is Broadcom earnings. So first and foremost, it was a beat-beat raise. I’m getting a lawnmower-

Daniel Newman: Yeah, can’t get rid of it man. I’m going to mute as much as I can.

Patrick Moorhead: Okay. All right. So first of all, beat-beat raise. VMware is making it happen big time From a financial point of view, data center AI is propelling the company. Remember, there’s two ways that Broadcom makes money in chips and AI. They connect AI compute and the compute itself. So, some pretty interesting stuff came out on the call. First of all, VMware, they have taken 8,000 disparate SKUs and narrowed that down to four distinct offerings. I know the company’s taking a lot of heat for it, but this is a required thing for the company to do and they’re behind. Well how about VCF, right? They’re putting VCF full cloud and full virtualization into one package. They signed nearly 3,000 of their top 10,000 customers to do what Hock said is build a self-service, virtual private cloud on-prem. I think that’s pretty darn good where we are today.

Financially VMware, there’s a new metric called annual booking value that’s essentially taking a long-term. Let’s say you’ve got a three-year contract and annualizing it. With VMware, it’s up going from 1.2 billion to 1.9 billion in the second quarter. So that was quarter on quarter. And Hock really kind of ended, in my opinion, talking about the full stack value prop, right? Compelling price point, very attractive price point, whole stack, vSphere plus networking, storage ops, and cloud. Real quick, switches. Kind of victory lap here. They doubled the amount of switches they sold year on year with PAM5, Jericho3, citing Arista Networks, Dell, Juniper, Supermicro. They doubled their shipments of PCI Express switches and NICs in the AI backend, and that’s inside of the rack.

And then finally, this is kind of a victory lap on AI versus fiber channel. Seven of the largest AI clusters and deployment use Broadcom Ethernet, but this is the kicker. Next year we expect all 100% of mega scale GPU deployments to be on Ethernet. Hock Tan, Charlie Kawwas are making it happen.

Daniel Newman: Yeah, that’s good analysis there. I mean I always say when their earnings come out that Broadcom just does what Broadcom does. I mean everything kind of up and to the right directionally, going well. I don’t know if you saw the question that Stacy Rasgon asked this really long deep dive question into the company and it’s basically asking if he was underestimating the impact of AI. Hock gave him a two word answer, very Hock like, basically it is what it is. I mean that’s not what he said, but more or less, this is what I can tell you. And when you’re Hock and you’re generating something like 60% of revenue as EBITDA, you can pretty much do anything you want.

The 10 for one splits, interesting, timely, the stock was really expensive. I mean on a dollar per share standpoint, it’s 1600 and I think there’s this trend line with companies of making shares more accessible to retail investors as that continues to expand. And Pat, you covered a lot of the ground, but what I said in my social commentary, that’s my new blogging by the way, I just Tweet. By the way, it’s not Tweeting, I X now because apparently Twitter’s not a thing anymore, but look, Broadcom may be the second most interesting play for AI, literally the second most interesting near term play for AI.

There are a lot of other companies sort of in the mix, but if you look across portfolio from everything from enterprise software, like what you talked about with VMware, to integration with network to the implementation development and deployment of XPUs, which are AI accelerators, which a lot of people don’t understand, but when you hear about these AI accelerators from hyperscale cloud providers, there’s really only two companies that are partnering with these companies to build them. It’s Marvell and it’s Broadcom.

And so Broadcom has a number of the wins. They’ve got a huge upside on it. And the fact is, whether it’s ultra ethernet or just traditional networking for AI, huge, huge opportunity. We’ve heard numbers like 25% of the spend on AI infrastructure is going to be in the network. These massive clusters create more back-end and front-end needs for networking and Broadcom is one of the only places to get this stuff. And so it’s a really, really compelling story for those that are kind of trying to get on this front-loaded hardware wave of buying and investing in AI.

So, there’s a lot to like there. The company is so well-run, it’s so efficient. And by the way, the initial sort of results it’s getting with VMware are impressive. I mean it’s growing faster. Straight out the gate, they cut two thirds of the workforce, they cut hundreds of partners. It may have been more than that. They cut all kinds of unnecessary spending and then here they grow again. And so isn’t the most Hock thing ever though, Pat? Basically everybody says it’s going to be completely culture killing, channel killing. You and I were the only ones that basically came out and said, “I don’t see it.” I just don’t think people get it. I mean he’s got the history. He did it with CA, he’s done it with Brocade-

Patrick Moorhead: Santech.

Daniel Newman: Santech. I’m just trying to think down the line. All of them got better after the acquisition and why everybody thought this wouldn’t, and I hate to say it, but everybody’s wrong. Everybody’s wrong. So far it’s only taken a few quarters, Pat.

Patrick Moorhead: Well, sometimes people confuse churn and angst with doing the wrong thing. Hock was really clear on where he thought they were with subscriptions. I’m going to quote him here. “Moving to subscription. Well, in VMware we are very slow compared to, I mean a lot of guys, Microsoft, Salesforce, and Oracle.” That was his quote basically and they could be a company that doesn’t change, but they’ve decided that they need to modernize and modernization, everybody’s not a fan every time it happens. So, stuff happens. I think you and I-

Daniel Newman: All I’ll say… Yeah, go ahead. Go ahead.

Patrick Moorhead: I think you and I were never saying there’d never be churn or some angst across some customers. I think what we were saying is that, A, and I said this in my first write-up, if you’re not part of where Broadcom makes money with VMware, things are going to change. And Hock didn’t raise prices. What he did is he combined the entire stack and if you were paying a million dollars for 50,000 VMs over annual, that was a ridiculous sweetheart deal that makes no financial sense for the company and things are going to change.

Daniel Newman: Absolutely. And just to be clear, I am 100% in line with you. We were not ignoring the fact there would be angst or there would be churn. We were just saying that it will work.

Patrick Moorhead: Exactly.

Daniel Newman: It will work and it is working and he’s okay to, even if it was a little smaller, if it was more profitable. The fact is though it’s getting bigger and it’s going to be more profitable and it’s more efficient. This is kind of like all the Musk hatred about X. He got rid of, what? 80% of the workforce. And although it’s a private company, there was so much media that it’s losing all its revenue, but it’s not actually correct and engagement’s actually rising. So, a lot of times people want things to be true, so they find an angle to make them true. Analysts are pretty good at this too, by the way. Anyway, all right, so that’s it. That was my take. Good results and very Broadcom of them.

Patrick Moorhead: Totally. So let’s move into a very, very different topic and that is into software and Adobe’s second quarter earnings. Dan, is AI making it happen or not?

Daniel Newman: So, look, I mean the market is the ultimate arbiter. So the last few weeks, and we’re going to talk about this later so I won’t spoil it, but software has been kind of in the crosshairs, right? Everybody’s turning all their dollars to infrastructure. The only place to make money in the market is, like we’ve said, is NVIDIA and now Broadcom. To some extent, we’ve even seen OEMs like Dell and Supermicro just have these incredible runs despite some recent pullbacks or temporary pullbacks. But the net net of it is that consumption of AI is going to happen in the cloud. This is the most accessible to most people to use AI. And so companies, whether it’s been, you talk about Salesforce, it’s ServiceNow, IBM, Oracle, and Adobe are the ones that are really making AI, and by the way, have made AI for a long time.

If you’ve been using tools with Adobe, this is not a new thing. Some of the generative capabilities have continued to evolve very quickly. And let’s be really candid, Adobe’s been adjusting on the fly. It’s had some controversial items in its different agreements and how it’s accessed and trained, but we’ve talked about that. That is a really, really fluid topic right now. So if everybody’s going to send stock storing for partnerships with OpenAI, then you can’t possibly be upset with Adobe for it trying to move quickly, ethically, and not necessarily nailing it 100% every time, at least in the eye of the beholder.

I’m very fascinated, by the way, over the last few weeks with Slack and Adobe that people are actually reading their licensing agreements. I didn’t know anyone did that. So that’s a good improvement. So let’s get to the earning side of things. They beat. They beat and they raise. So what do people want? They beat. They beat the raise. The arbiter of the market sent them up about 14%. I think it may be a little bit even more than that in the post-market after the reporting. The numbers were good, they had about a 10% revenue growth, which by the way is kind of interesting because I think Salesforce said they were at 9% and the world kind of lost its mind and sent the thing bombing downward. But the question really is about adoption.

And the thing about Adobe that is strong is that people seem to be paying for its AI. The ability to add AI is something that people are willing to pay for, which is one of the big demarcations between software that should get the market boost around AI and companies that AI is literally a feature for maintaining customers. And so overall, the company performed well. It’s getting AI into all the right places across its different clouds, document cloud, it’s been there, they’re adding more creative cloud. That’s been a big boost. And then of course the experience cloud, which is the whole customer data platform, CRM side of the business, that continues to be a growth vehicle for the company as well.

Are they growing fast enough? I mean it seems that the street says yes. I think everybody wants SaaS companies to be growing much over rule of 50, really. But they have the strong margins, they have the growth rate, they have the diversification, they have AI in their products, and they’ve been able to move really, really quickly and now they’re getting upgraded subscribers to their Firefly product and that’s one of the big indicators of the success, Pat. So, solid, good, market likes it. I like it. Software is going to be a really interesting part of the market to watch because I don’t think it’s gotten much AI credit so far. And is that a temporary thing, Pat? Or is that a forever thing? Meaning, is software doomed? I say no, but some people seem to think the answer might be yes.

Patrick Moorhead: Yeah, that was good analysis, Dan. And I wanted to point out a couple things. While I would have preferred them, like Broadcom and like NVIDIA to say, and even Microsoft for that matter, “This is how much of our revenue is AI and this is how much it boosted.” We didn’t get that. What we did do is we did get some of the cookie crumbs and that was 9 billion Firefly images to date, generative fill and generative expand are two of the top three features in the latest versions of Creative Cloud. The one thing Dan, I can’t get yet right in my mind, and maybe this is just time, is when I was at Adobe Summit and talked to a few of Adobe’s customers, they were talking about 50% savings and what would be the creative cloud and maybe a little bit of the experience cloud products. And those were up 10% and 9% respectively.

And I’m really happy to see the Firefly images and different features getting used and AEP is nearing a billion dollars. I think I just expected more, when I looked at all these and maybe I need to get back on the ground and say, “Okay, their biggest customers are enterprises. Enterprises are slow.” I do know, when it came to Document Cloud with Adobe, I paid my nine extra dollars a month to get their AI features and it was so instant, I did it almost instantly. They gave it to me for free for a couple of weeks and they pounded it and I paid the money.

So, is AI kicking in for Adobe? It’s hard to tell right now. And the company doesn’t make it easy to parse that financially. Adobe is very similar to me, like Apple, they have this gigantic installed base. They don’t have to be first, but interestingly enough with some of their key features like Firefly, they were nearly first right up there. They have things like video that they need to work on with generative AI, that’s on the road map. We haven’t seen a lot of details around that, but I have to tell you, I just think the enterprise are going to jump on this. They see a cost savings capability through not only the content pipeline, but all the way through social media and commerce. So it’s going to kick in, can’t tell you when.

Let’s move to the next earnings and that is Oracle, fourth quarter, fiscal ’24. Hey, the company had a miss-miss and the stock went up 13%. So, what the heck happened? Well, what the heck happened was a nearly $100 billion RPO, an open AI inference deal, it’s not training, that was clarified later, and a Google Cloud deal where Oracle Exadata machines are literally sitting inside of Google data centers and all Google services, like Vertex AI and Gemini, have access to all that data. By the way, free ingress and egress, a thing that enterprises just want.

So some broader thoughts here. OCI, and that’s their IAS, demonstrates again that it has a very competitive IAS. I have to wonder too, is this OpenAI capability being brought up for Apple deal or what? There are some that believe, based on the architecture that OCI has, that Oracle has the most secure cloud out there. And by the way that they’ve done the virtualization versus others, they have a very compelling case here. At a minimum, it shows that that super cluster is pretty badass.

Second observation, after 15 years of the public cloud being out there and everybody having alternative databases and pooping on Oracle, Oracle shows how it’s been innovative with its database strength, database, sorry about that.

Daniel Newman: It’s okay

Patrick Moorhead: Now with Google, but prior to that with Microsoft Azure, enterprises are asking for this and here we are. Enterprises want free multi-cloud interconnects and Oracle and Google are delivering that. Final question, what’s AWS’s move with Oracle? Maybe when hell freezes over. I don’t know. The two have thrown immense bombs back and forth and in the end, the customers will probably get what they want, which is to have an Oracle Exadata machine sitting inside of AWS and who knows? Maybe free ingress and egress. We’ll see.

Daniel Newman: Yeah. So, I am going to talk a bit about the earnings. I’m going to mention a little bit about this OpenAI partnership, which I thought was pretty interesting because the results weren’t super great from a standpoint of the expectations. I think they kind of missed across the board.

Patrick Moorhead: They did.

Daniel Newman: But the vision and the growth of its cloud continues to be where its strength as. Remember, this is a company with more than 70% predictable revenue, so it’s very easy to forecast the performance. Some of the big deals and the big wins, all the excitement and exuberance for the company tends to be in the cloud. So the numbers being looked at as how is its cloud growth going? 40 plus percent infrastructure growth. So you’re seeing, it is converting well on its core customers using Oracle cloud infrastructure.

It’s also investing big in AI clusters, it’s partnering with OpenAI, partnering with NVIDIA. It’s got kind of that right pedigree of the different partnerships that it’s doing. It’s extending data center with Microsoft. I mean they’re partnering really effectively. And Oracle is a company that people didn’t generally look at as a partner-friendly company, it’s actually doing this pretty well in terms of getting its tentacles into the broader markets. It’s very focused on sovereign cloud, it’s got cloud at customer. So bringing that sort of cloud experience on prem where it needed to be, really understanding that slow migration off of private or on-prem to public cloud and making that and enabling that for people that want to operate in a cloud-like environment, but still have the benefits and the cloud sovereignty that you need. So, all those things are really, really effective.

But the growth came in the infrastructure, which is really, really interesting because their infrastructure growth versus others’ is substantial. It’s also smaller. It’s significantly smaller more so. You got to acknowledge both of those things at the same time. The cloud deal with OpenAI was really interesting, of course. This was something that the market had sort of, I don’t know, I don’t know if you expected it, but what I’m saying is, the company misses, but at the same time it still sees a really substantial pop. What did that come from?

So Pat, this goes back to our Apple conversation. You and I didn’t love it. You and I are like, “Why do they need it?” The world freaking loves it. The world absolutely wants everybody to partner with OpenAI. So it seems like maybe the delta between the investor class, which is all looking for, how do we get exposure to OpenAI since it’s not public? To the tech purists that we are going, “Well, if you’re a privacy company, why are you doing this?” But basically Oracle is going to give more compute capacity to ChatGPT, or OpenAI. So basically now it’s Microsoft Azure AI, Oracle, and ChatGPT all working together and with basically Sam Altman being very candid to the market that he needs more compute power, where does he go to get it? And so to your point, the hell freezes over thing with AWS is that there’s probably… It’ll end up getting there because that’s just how the market works, but there’s a lot of baggage there.

Patrick Moorhead: Lot of baggage, man.

Daniel Newman: And so I don’t know if that’ll happen anytime soon, but the overall perception is that this is a really, really good thing. Now, another thing that is notable that’s kind of exciting and interesting, especially now that this whole proxy war or shareholder war is over with Tesla and Elon’s going to get his money, is that Oracle is providing a poop ton of infrastructure to X AI as well. And again, while everybody in the world doesn’t want to like Elon because his politics, I don’t rule that out from being something, Pat. I mean I’ve been watching your… You’ve been doing this kind of charting on the best gen AI tools as you’ve been searching, you’ve been using earnings in fact as your platform to look at this. Well, I think a few people, including myself said, “Hey, go check out Perplexity. Go check that out.” And I think it bumped Google off your top four right now temporarily?

Patrick Moorhead: Yeah.

Daniel Newman: Top three. Groq is pretty good. And I’m just saying, not Groq chips, which we do talk about, Groq AI. I actually find it to be pretty darn useful when I’m using it inside of Twitter. And that’s not X AI itself, but he’s using common capacity and competencies. What’s to say that X AI doesn’t become a really, really valid platform and that could be a huge growth engine for Oracle as well. So they’re making good partnerships, they’re in the right places, and they’re adding capacity in the right ways, and they’re making good investments. And I think that’s why the investors got excited, despite the fact that the actual results this quarter were not particularly great.

Patrick Moorhead: Yeah, it was actually good to see the market actually respond to something that’s not in your face and something that was in the future. Hey, I want to bounce to a really provocative conversation that you have been very public with, some pretty long posts. Let me read some of the stuff you said. Software and SaaS have been under fire, but the market was also quick to recognize a good result based on Adobe. But before that, you had a very long post. In fact, you had a long post alert out there based on what Salesforce had brought out, and you had ended it with saying, “Is the SaaS bubble bursting?” So hey, let’s dive in here. Is software and enterprise SaaS dead, Daniel?

Daniel Newman: Well, like I said, it was nice that we sort of started this because we had a couple of software companies to talk about, but Salesforce reported a guidance of under 10% and the market just absolutely pummeled every software company for it. You saw 10+ percent drops, and these are not companies that are used to that kind of volatility. These are companies that typically move a lot slower because they have high ARR, high predictable revenue, consistent margins, steady growth rates.

And of course, when you look at these projections on revenue, these are real solid companies. Benioff, for instance, over at Salesforce, Marc Benioff, CEO of Salesforce, had made a lot of what I would call the operational cuts that were needed to be made. They got a little financially overburdened during COVID, that started driving down APS, growth was slowing a little bit. Enterprise software, to your point, can have long cycles and the AI trend has been a bit opaque to the market as to whether people are paying for Genie. Is it a value add?

This is the question mark to ask, Pat, is AI incremental or is AI a requirement to keep your customers? Because new technologies are going to come out that people are going to be able to get access to AI more simply. This is what my conversation during The Six Five Summit with Bill McDermott was all about single pane of glass abstraction. Do all these different tools eventually just become databases? And then one sort of pane of glass can basically look across all of the systems and then provide insights rendered with gen AI? I mean literally, because you can render an interface with gen AI that could then just basically, just like right now we’re doing with OpenAI on ChatGPT, it looks across everything and then renders text. Well, could you render imagery? Could you render a forecast? Can you render… And we’re already seeing that sort of happening.

So then the questions come down to how quickly does this happen? Who’s the right company to do it? Is this really possible when you have data that isn’t all public? So what ChatGPT does with publicly available data is very different than dealing with on-prem, in the cloud, private data with different sovereignty, different data provenance, that has to be dealt with, residency. And so it’s not that easy. It’s not going to be as easy as just like, “Hey, we’re just going to look at all these different software. You’re going to look at your ERP, your CRM, your SCM, your HCM, and all these tools together and you’re just going to query it and you’re just going to get this awesome visual.” But that is ultimately where we want to go. So who are the best companies to ultimately serve this market? And it’s the consumption layer, Pat, and software is the consumption layer.

So is it everybody? I don’t know that it’ll be everybody, but core companies like Salesforce, SAP, Oracle, Workday, ServiceNow, they’re in a really good position. You’re talking about companies with 100,000+ customers that are on subscriptions that have made massive investments to deploy these softwares in their businesses. You and I have done it. We’ve already seen, even in the smaller businesses, how sticky this stuff is. And so will we pay $10 or $15 or $20 a month more to get crazy capabilities and generative tools? And the answer I think ultimately is yes. I think incrementally we are going to spend more to get access to AI inside of the tools that we already have that allow us to start enjoying the benefits of AI immediately.

So, I think the market is sort of messed up right now. We look at companies that have five customers making 50% of their revenue because we see the infinite value of training models, which is important and necessary, but I think there’s much more risk there of competition, there’s risk of margin erosion, there’s risk of supply chain. There’s a lot of reasons to like a company like Oracle, like Adobe, like Salesforce, that have a huge customer base that are captive users that want AI capabilities and are probably willing to pay something for them, but the market hasn’t shaken out how much they’re willing to pay and until they do, I think there’s risk.

And I think, of course, there is the disruptive risk of new companies come in, using gen AI, streamlining data. But remember, cloud is, you like to say, Pat, a teenager, for almost two decades, companies have tried to bring databases together and have not so far succeeded in doing that in a single streamlined pane of glass. And until they can, we’re not going to be able to do gen AI either.

Patrick Moorhead: Yeah. So that was a good 10-minute analysis, Dan. It was good-

Daniel Newman: It was like six at the most. Sorry.

Patrick Moorhead: So, here’s my take. My take is that if I look at some of the biggest transitions that we’ve had, which was on-prem to internet, and by the way, Salesforce was an internet company, client server, enterprise SaaS, public cloud, social local mobile, there’ve been big changes. And what happens is there’s a lot of churn and then people stop buying everything because there’s too many choices. And right now, look at the choices to fulfill what maybe the enterprise SaaS folks are doing.

First of all, you have companies like ServiceNow who have this experience layer that can cut across that says, “Hey, just give me access to the application. Don’t upgrade the application, but pay me to be the experience layer.” That’s one. Then you have the horizontal folks, Google agents, you have Microsoft Co-pilot, you have Amazon Q that are talking about the same type of capability, “Hey, put this layer on top and make this happen.” And then you’ve got budgetary challenges, which are infrastructure and GPUs that could be taking away from some of these deals. So, to me, this is a wrestling match, very similar to what we’ve seen in the prior historical inflection points, and it’s going to be up to the Oracles, the Salesforces, the Adobes to make their value proposition just simple.

The final thing that we have a delay on is because of the data. The reason why Marc Benioff on all his earnings calls talks half about data is because that is the technological challenge and also the challenge from a security and privacy and “safe” AI to boot. So hey, let’s hit our final topic here. Dan, let’s have you, for at least two more minutes here, Six Five Summit 2024. We’re feeling really great about it. 62 sessions over three days with nearly 25 CEOs and presidents, over 18 hours of total content about AI and how you get AI in the enterprise to light it up. And of course, the continued build out on the cloud, on the enterprise edge, and also in devices. We talked automotive, cloud infra, connected intelligent edge, collaboration, cyber, data, DevOps, end-to-end enterprise AI platforms, enterprise apps, modern work, semiconductors, sustainability, and quantum.

Our headliners, we were so happy with, right? We had ServiceNow, Ericsson, Slack, and Smartsheet. It’s interesting, previous years most of our headliners had been what you might’ve considered infrastructure, but we had a ton of enterprise SaaS companies, with ServiceNow, Slack, and Smartsheet. I want to put a pretty awesome quote Bill McDermott had out there. He said, “We were gen AI before gen AI was cool. We actually saw this and we’ve seen this for some time. This is unlike any other revolution that I’ve ever seen. We’ve been through the internet, cloud computing, the iPhone moment, but I really believe the AI moment is bigger than all those combined.

And when you ask me what’s going on in the market, my world revolves around my customers and their world. I’ve never seen a moment where every CEO is so personally activated in this massive technology shift. This is a once in a generation move.” That is the awesomeness that you can get for the next two weeks. Sign up, baby. That’s the only way that you can get the content, and content not just from the four companies that I’ve talked about, but also the track openers from HP, IBM, Samsung, Azure, Cohesity, and T-Mobile and 60+ companies in totality.

Daniel Newman: Yeah, no, it was a great event, Pat. I know we’ve got to roll. 40+ companies, 60 some odd speakers, thousands of registrations and people viewing the content concurrently. We are going to be distributing this content into clips and social two weeks out from now, but in the meantime, register, be part of it. Get this stuff. I mean great keynotes, great track sessions, a ton of value chucked in the spotlights too, Pat. This thing was jam-packed. Can’t wait to get feedback from more of you and to have many of you back as our partners as we know you’re watching this thing. Thank you all so much. Appreciate the community. It’s been a blast. Fifth year, we’ll see what’s in store for year six.

Patrick Moorhead: I want to thank everybody for tuning in, talking Apple, Broadcom, Adobe, Oracle, enterprise, the death of enterprise SaaS or not, and The Six Five Summit 2024 wrap. We appreciate you and we’re going to try to get back on schedule. As long as I don’t take any vacations, Dan doesn’t take any vacations or travel internationally, and be on the wrong time zone. So hey, thanks for tuning in and have a great weekend. We appreciate you. Bye-bye.

Patrick Moorhead

Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.