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Moving on to Alphabet shares moving lower this morning down about 4% here after YouTube ad revenue came in below expectations. The tech giant continuing to double down on AI investing with CAPEX spending over $13 billion in the quarter. That was above estimates of just over $12 billion and that was another thing investors were disappointed with in the earnings print. CEO Sundar Pichai explaining Alphabet's investments on the company earnings call.

No, I think to, you know, the one way I think about it isn't when you go through a curve like this, uh, you know, the risk of under investing is dramatically greater than the risk of over investing for us here.

For more on these results, we've got Brad Erickson, RBC Capital Markets internet analyst joining us now on the phone. Brad, thank you for making the time this morning. We just heard Sundar Pichai's commentary on under investing being more of a risk than over investing. Is that true for shareholders?

Uh yeah, thanks for having me. Uh I would say I would say generally yes. Um you know, this company is generating a ton of cash, right? 60, 70, 80 billion in general over over the next few years, probably. Um there there is uh plenty of room there. Certainly they have the balance sheet and that cash flow to fund this. There is always going to be some concern and and this is just kind of more of a near-term thing, I would say, is that, you know, is the company's sort of structural return on invest capital declining? Um yeah, I think you can you can probably make that argument. But to his point, if this opportunity does turn out to be as big as as many think over time, um these investments will have proven uh uh correct.

Brad, from your modeling, what do you think those opportunity or that monetization opportunity looks like and how big of a catalyst could this ultimately be uh for the company, for the stock in the future?

Uh yeah, sure. So, you know, I think maybe just to go to the numbers because it's a very complex topic qualitatively. Uh the search business we think is probably adding something on the order of close to $20 billion a year. And then the cloud business is right now is is on pace to kind of add about $10 billion a year. So you add that up $30 billion. Um this year, the company is expected to spend about 50 billion, not quite 50 billion of CAPEX. And so, I I think what investors are trying to sort of take a view on and figure out is what portion of that 30 billion of of incremental revenue is attributable to AI versus other stuff. And I think at this point what we're hearing from the company, and this is our view, is is that all of it should essentially be be attributable because obviously we know the full amount of the CAPEX. And so, I think if you look at those numbers over time and they continue to stack on that type of growth, I do think um you know, the the investment case for what they're investing right now will make sense.

I'm curious about I I want to focus on the CAPEX piece a little bit more, Brad, because as you mentioned, they did spend a million dollars more than what investors had anticipated. How much longer are investors going to be willing to tolerate that amount of CAPEX given that, as you mentioned, it is a little bit hard to suss out how much of their revenue is coming from the AI that is leading to a lot of those increases and expenditures?

Yeah, so I I think I take a little bit of a of a maybe alternative view to some on the CAPEX last night. I would actually argue that, you know, they they missed by a billion dollars, as you said, and that is true. However, you know, this the CFO did reiterate kind of the run rate commentary through the end of the year. If you recall last year, they basically for for two quarters in a row, CAPEX commentary got worse and worse. And it kind of suggested that uh we call it you know, the ground was kind of moving underneath them. There's all this AI spend. We all know about um the GPU situation withinvidia. And it it it just suggested they didn't quite understand what was going on or or have a good sense of visibility. I think based on their commentary last night, I actually view them as now having a good sense of visibility. And so what that means is kind of from a second derivative perspective, is it's not getting marginally worse. That's generally a good thing for stocks.