Transcript: Big tech continues to rock

This is an audio transcript of the FT News Briefing podcast episode: ‘Big tech continues to rock’

Marc Filippino
Good morning from the Financial Times. Today is Friday, February 2nd, and this is your FT News Briefing.

[MUSIC PLAYING]

Big tech companies continue to dazzle investors, and there’s more tension building between the US and Israel. Plus, Elon Musk is pulling an unusual move after a court struck down his generous pay package. I’m Marc Filipino, and here’s the news you need to start your day.

[MUSIC PLAYING]

Is there anything that can slow down Big Tech? American companies like Microsoft and Alphabet reported strong quarterly earnings this week. Yesterday, Meta, Amazon and Apple had their turn, and they didn’t disappoint either. One highlight was Meta’s stock. It jumped more than 15 per cent after the bell when they announced its first-ever dividend and $50bn in share buybacks. Richard Waters is our tech writer at large, and he’s here to talk about why Silicon Valley is still going strong. Hey, Richard.

Richard Waters
Hey, Marc, good to talk to you again.

Marc Filippino
Good to have you back. So there were just a slew of tech earnings this week. What stuck out to you as the central theme?

Richard Waters
Well, you know, we’ve all been transfixed by the amazing run in the stock prices of a handful of big tech companies. And so I think the biggest takeaway from this week is that the business momentum behind some of these companies is still tremendously strong. And I think support for a lot of that run-up in prices that we’ve seen. Revenue growth across the board is stronger than people thought. The cloud business, which has struggled a bit for a year or two, is coming back, is turning a corner. Advertising in the final quarter last year was very strong. So, you know, I think we’re seeing the fundamentals, the core businesses of these companies are just growing very, very firmly and supporting the stocks.

Marc Filippino
Richard, artificial intelligence has been a topic that really just can’t escape the headlines for the past year, year and a half at this point. What role did they play in fourth-quarter earnings this week?

Richard Waters
Yeah. You know right now you can see the AI everywhere apart from in the numbers. Apart from one company, Microsoft having got out in front really in generative AI with its OpenAI partnership, is the only company that’s really seeing a revenue impact right now. And it was really quite startling. You know, they said that six, six percentage points of growth in Azure, their cloud business came from AI last quarter. And that was double the previous quarter. And it was well ahead of what anyone was thinking. This is one of the very first signs that this business is picking up. But elsewhere, it’s all promises. And even the promises are not very clear. And in fact, we’ve even seen Apple say, you know, we’re going to talk more about AI. Tim Cook saying that, that Apple would have some kind of, you know, public announcements later this year just to kind of convince, you know, everybody that they aren’t falling behind in this technology. But at the moment, it’s all spending, it’s all effort, and there’s no real revenue behind it.

Marc Filippino
I mean, it was such a strong week, but were there any cracks that you could detect when following these earnings?

Richard Waters
I think for each of these companies, you could find reasons to, to question. At Apple, particularly, the fact that sales in China slumped, is, you know, is a very big warning sign because Apple, uniquely almost among US tech companies, has made, made a big success of the Chinese market. The fact that it has a real strong competitor now in the shape of Huawei and there’s tensions rise, so the market is now going to worry a lot about Apple’s business there. Likewise, I think, Google’s search advertising hasn’t been as strong as a lot of people had hoped. It’s actually returned last year to a nice growth rate, but it’s not quite back to where a lot of people had hoped. The same would go for Amazon Web Services. It’s the leading cloud company. It’s returned to growth, but it’s only growing at 13 per cent, which is less than half as much as Microsoft. Is Amazon losing market share? So a lot of these companies, there will still be questions that I think people are going to have going throughout the year.

Marc Filippino
Richard Waters is our tech writer at large. He covers all things tech. Thanks, Richard.

Richard Waters
Well, it’s a pleasure.

[MUSIC PLAYING]

Marc Filippino
US President Joe Biden signed an executive order yesterday that approves financial sanctions against some Israeli West Bank settlers. The new sanctions will target individuals who are responsible for, quote, extremist violence against Palestinians and will cut them off from the US financial system. The crackdown comes as Biden and Israeli Prime Minister Benjamin Netanyahu are having a harder time seeing eye to eye on the conflict in Gaza.

[MUSIC PLAYING]

Tesla CEO Elon Musk is hitting back after a Delaware court struck down his $56bn pay package. That’s billion with a B. He wants to move the company’s corporate registration from Delaware to Texas. That’s where Tesla’s physical headquarters are. Musk says he’s putting the idea up for a shareholder vote quote immediately. I’m joined now by the FT’s Sujeet Indap who wrote about Tesla, Musk and the great state of Delaware. Hi, Sujeet.

Sujeet Indap
Hi, Marc. Good to talk to you.

Marc Filippino
All right, so tell me a little bit about this pay deal and why the judge struck it down.

Sujeet Indap
Sure. So the pay deal comes from 2018. The board said to Elon in this package, if you reach these goals for the company, which include profits but also stock price, you have to increase the value of Tesla by more than $600bn, which seemed crazy at the time because Tesla was only worth $50bn at the time. In fact, he hit all these thresholds very quickly and thus was eligible for a pay package that is now worth $56bn. And shareholders said the shares that he’s getting, that’s way too much for a CEO. It’s way out of bounds, even for a big company. And in fact, all those shares are harming us because there’s all these other shares that are out there, and it’s diluting our value. So we’re going to sue to stop you.

Marc Filippino
And the judge sided with the shareholders. I think one thing that might be confusing to folks is that Tesla is based physically in Texas, as I mentioned, but it’s incorporated in Delaware. Why is that the case?

Sujeet Indap
Yeah. So, companies, obviously, can be headquartered wherever they like, but most large companies in America choose to have their official legal domicile, if you will, in Delaware. The reason is predictability for both shareholders and companies, and that the law is well known. And if a case or dispute arises, there’s a real sense of how knowing how it’s going to proceed. You may win or you may lose, but you know how the judges are going to think about the case, and Delaware is just the easy default. State itself made a real investment in having professional judges and all the infrastructure that goes around, like building a credible legal system.

Marc Filippino
Sujeet, what are the odds that he’s actually going to be able to persuade the board and shareholders to move the incorporation of the company to Texas given that the shareholders were the ones who brought the lawsuit in the first place?

Sujeet Indap
Texas is a wild card. They’ve started a new corporate court. It hasn’t even really launched yet, but it’s coming later this year, and it’s unclear exactly what kind of standards they’re going to have, what the judge’s expertise will be. It’s all brand new, so Musk is going to have an uphill battle to move. Other companies have tried this, often unsuccessfully. And so Tesla might be different just because you have a unique CEO and a unique shareholder base with all this kind of meme stock and social media forces out there, but it’s pretty tricky to move out of a place most people have liked until recently.

Marc Filippino
Sujeet, what’s your big takeaway here in terms of the relationship between CEOs, boards and courts? I mean, this is kind of messy, and I’m sure that other companies are watching this closely.

Sujeet Indap
Yeah. I mean, Elon is such a unique case study in that he has all these eccentricities. We see the tweets; we see his behaviour, which at times is erratic. And you would think that all those things would give shareholders pause. This wouldn’t fly at any other company. But in fact, it flies at Tesla because he has created the first really commercially viable electric vehicle company. It’s still worth $500bn, and that gets you a lot of leeway. But maybe not as much leeway as he thinks so.

Marc Filippino
Sujeet Indap is the FT’s Wall Street editor. Thanks, Sujeet.

Sujeet Indap
Thanks, Marc.

Marc Filippino
Ukraine got a pretty big win yesterday. The European Union finally agreed to a €50bn plan to support the war-torn country. The compromise came after Hungary’s Prime Minister Viktor Orbán, agreed to back the deal. Hungary had been the only holdout in the EU, and Orbán only caved after a lot of pressure. The bloc tried some pretty unusual measures over the past week to get Orbán to budge, like suggesting cuts in funding for Hungary and even potentially stripping Budapest of voting rights in the EU.

[MUSIC PLAYING]

Before we go . . . 

[F1 audio clip]

Marc Filippino
Formula One driver Lewis Hamilton shocked racing fans everywhere yesterday. He is ditching Mercedes and leaving the team that made him a superstar.

[F1 audio clip]

Marc Filippino
Hamilton last won the World Championships in 2020. Mercedes has since struggled to put out a competitive car. Hamilton will be joining Ferrari in 2025 on a multiyear contract.

[F1 audio clip]

You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Kasia Broussalian, Sonja Hutson, Fiona Symon and me, Marc Filippino. Our engineer is Monica Lopez. We had help this week from Joanna Kao, Zach St Louis, Sam Giovinco, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

[MUSIC PLAYING]