gshc2020.com

Meta CEO Mark Zuckerberg addressed the issue on the company's Q2 earnings call this week. While Meta doesn't currently have a business selling compute — the data center processing power used to run AI — to customers, Zuckerberg has said it's on the cards.

Zuckerberg said that a "significant portion" of its compute will go toward training Meta's AI models, powering agents, and growing its core business. "But we also expect to grow a large business serving large customers as well," he said.

Tech giants are racing to build out more compute to power soaring demand for artificial intelligence. Google and Meta both just slightly raised their capex forecast for the year, and Google signaled 2027 will likely be even bigger (in a rare move, Microsoft held the line on its capex projections).

All that spending is now showing up in the financials: Google's cash flow went negative in Q2 for the first time in the company's history, and Meta's plunged 91% from the previous year.

Selling compute is one way to offset that cash problem, but it also comes with an opportunity cost. The common refrain from execs across the companies is that there simply isn't enough compute to go around. These companies are racing to stay ahead in the AI race, and employees sometimes compete for access to compute.

It's a conundrum for Microsoft, too. As Business Insider's Dan DeFrancesco put it earlier this week: "Does it cash in on demand today or focus more on its long-term goals?"

On Wednesday's earnings call, Microsoft CFO Amy Hood said that "customer demand continues to exceed available capacity" for its cloud business.

'Foolish' to take a short-term profit

Zuckerberg returned to this problem later in the call on Wednesday. "Obviously, a common trade-off that we need to make is around how much do you monetize something today versus develop future assets for the future?" he said.

"It would be foolish to basically just sell all of the compute and take a short-term profit," he said, adding that improved intelligence would compound the value of the compute.

Hoarding too much compute could also be bad for the lucrative cloud businesses of hyperscalers like Google. "If you don't have enough compute for enterprises, they'll go right back to Amazon or Microsoft," said Bernstein analyst Mark Shmulik in a research note on Google last week.

Last week, Google said it would buy more third-party compute to satisfy customer demand as it builds out more internal compute for itself.

Google is also building its own chips, known as tensor processing units, or TPUs, which it is putting into other data centers with partners to unlock more capacity.

"Our first priority is making sure we are allocating what we need to compete at the frontier in terms of AGI development," said CEO Sundar Pichai on last week's earnings call, referring to how Google is using TPUs. "That is the foundation for everything we do."

While Google leans on its cloud business to boost growth, it also needs to hold enough compute for itself to protect its moat around Search, Shmulik said in last week's note.

Oh, and it also needs to keep developers happy and locked into its ecosystem, which means allocating — you guessed it — more compute. %!s()

"The brand has seen a meaningful near-term sales impact," CEO Chris Turner said on the company's second-quarter earnings conference call, adding that the company expects the downturn to be a temporary problem for Taco Bell.

In the third quarter to date through July 27, Taco Bell's U.S. same-store sales have fallen 2%.

"Since the U.S. food safety industry issue became front and center only two weeks ago, we saw maximum impact to sales over the weekend of July 18," CFO Ranjith Roy said.

Since the Food and Drug Administration first linked the parasitic outbreak to iceberg lettuce served by Taco Bell in mid-July, daily traffic to the chain's locations has plunged by double-digit percentages, according to Placer.ai data. Yum depends on Taco Bell as a "growth engine" for the company, and the crisis puts that title in jeopardy, at least in the near term.

Sales trends have been "steadily improving" over the last 10 days, according to Turner, and brand sentiment on social media has returned to pre-crisis levels. Roy said that average sales over the last four days have already made a roughly 50% recovery, compared with the steepest sales declines after the initial announcement.

"Elevated uncertainty initially weighed on consumer demand, and since then, consumers have become increasingly aware that this is an industry-wide issue, not an issue specific to Taco Bell," Turner said.

Yum's stock climbed 4% in premarket trading following the optimistic commentary on sales trends. Entering Thursday, it had fallen about 5% since the FDA tied the company to the outbreak.

Cyclospora is a water-borne parasite and often found on fresh produce, like iceberg lettuce, herbs and raspberries. Outbreaks are more common during the warm months, although the ongoing outbreak is the worst in recent history.

Taylor Farms, the supplier of the affected lettuce to Taco Bell, has issued recalls for a wider swath of its products that include iceberg lettuce. Federal health agencies have also announced that they are tracking a second cluster of cyclospora cases and have not yet announced a likely source.

Other restaurant chains not implicated in the outbreak have also seen their sales slip. Chipotle Mexican Grill executives said consumers' mistrust of chains serving fresh lettuce weighed on sales in the second half of July. Chipotle's options include romaine lettuce and a Supergreens mix, but not iceberg lettuce.

The results Yum reported are for its second quarter ended June 30, before it was tied to the foodborne illness outbreak. The restaurant company does not typically provide an outlook for same-store sales growth or earnings per share for the full year or the next quarter.

Yum Brands' second-quarter results

Here's what Yum reported compared with what Wall Street was expecting, based on a survey of analysts by LSEG:

• Earnings per share: $1.62 adjusted vs. $1.58 expected
• Revenue: $2.17 billion vs. $2.2 billion expected

Yum reported second-quarter net income of $853 million, or $3.08 per share, up from $374 million, or $1.33 per share, a year earlier.

Excluding charges related to its strategic review of Pizza Hut and other items, the restaurant company earned $1.62 per share.

Net revenue climbed 12% to $2.17 billion, lifted by new restaurant openings.

The company's global same-store sales rose 3% in the quarter, roughly in line with StreetAccount estimates of 2.9% growth.

Taco Bell's same-store sales jumped 7% in the quarter. The Mexican-inspired chain has long been the top performer in Yum's portfolio.

KFC reported same-store sales growth of 2%. In China, its largest market, system sales rose 6%, according to Yum.

Pizza Hut's same-store sales slipped 1%. Last month, Yum announced the sale of the long-struggling pizza chain to private equity firm LongRange Capital and Yum China for $2.7 billion.

Correction: Yum Brands on Thursday reported mixed quarterly results. An earlier version misstated the day. %!s()