Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

IBM launched a Flex Plan for access to its quantum computing hardware in a move that aims to expand access for organizations, enterprises and researchers who want access without monthly limits.

The IBM Quantum Flex Plan provides access on day one with an entry point of $30,000+ to gain access to Big Blue's entire fleet of quantum systems. Flex plan users will also get the advanced software features, support and early access to new releases.

According to IBM, the Quantum Flex Plan is aimed at research and development teams that need quantum systems on a project basis that's less predictable. Examples of project based access would be times of peak research cycles or preparing a conference submission. IBM recently upgraded its Quantum Data Center to its latest Heron quantum processor.

2025 is the year of quantum computing (already) | CxOs need to focus on quantum computing readiness, not the noise

Constellation Research analyst Holger Mueller said:

"In a sign that technology is no longer the No. 1 challenge for the quantum industry, IBM is introducing a more flexible, lower priced system, that should make the  first trials and evaluation of quantum technology easier in 2025. It is also a sign that IBM has the capacity to offer this flexible pricing. Few quantum players have capacity."

Academics and startups would also be examples of users that would explore quantum use cases without committing to a long-term plan. For instance, an academic researcher could use the Flex Plan to match funding levels and educators could use Flex to teach quantum computing.

• Constellation ShortList™ Quantum Full Stack Players
• Constellation ShortList™ Quantum Computing Platforms

IBM noted that its flex plan fills a gap above the free Open Plan and pay-as-you-go offerings. IBM also offers a Premium Plan, a subscription that is designed for customers that want a longer commitment and access to quantum systems.

Key points about IBM's Quantum Flex Plan:

• The Flex Plan is designed for compute-intensive quantum workloads on a per-project basis.
• The structure is pre-purchased minutes with no monthly caps.
• Flex plan addresses cases that require bursts of sustained executions such as chemistry, machine learning and optimization.

IBM Quantum:

• IBM upgrades IBM Quantum Data Center with Heron
• IBM launches Qiskit services for quantum computing
• When Quantum SDKs Go to the Gym, Qiskit Wins
• IBM Boosts the Software Side of Quantum

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

Resilience is the major theme as enterprises report quarterly results and the biggest takeaway is that the giants will weather the storm and smaller companies won’t.

In call after call, technology, business model and supply chain resilience are major topics. Even the large companies that are out of position--say PepsiCo compared to Coca Cola--will figure out an uncertain economy, tariffs and plunging consumer confidence. Apollo has a good deck of the most recent indicators and why CEOs are talking about resiliency so much.

It's time you start thinking about the various forms of resiliency and how they apply to your enterprise.

Consider Walmart's approach to its platform, digital flywheel and optimized scale. Consider the financial giants that continually invest in AI. Consider Google, which is exposed to advertising but has the scale to weather storms, and how it has multiple levers. The list goes on.

Here's what Coca Cola CEO James Quincy said on the company's first quarter earnings call and its supply chain that may actually be tariff proof.

"We're ironically known for Coca-Cola, the world's most global brand and a set of other global brands. But actually it's a very profoundly local business. The beverages in each country are largely made in that country by local employees using local inputs."

Coca Cola in the US system is nearly self-contained. Ditto in Brazil and most regions around the world.

"The imperative is to make the global brands locally relevant. And in the moments of geopolitical tension, one of the key strategies is to drive and reinforce the made in or made by. The fact that it's a local business, the factory is down the road from you, your neighbors make the product. And this underlining of the localness of the production and the distribution and the workforce plus reinforcing affordability tends to be the key thing to do, particularly with Brand Coca-Cola in these moments," said Quincy. "It's not the first time it's had to be used. I'm sure it won't be the last. And so, we think our business model is set up for an environment that can take a degree of disturbance because it's a very resilient business model."

Turns out the Coca Cola model will have to be replicated by most enterprises. The big question is how fast companies can pivot. It's not like Apple can move its manufacturing out of China overnight.

• Microsoft expands at Coca-Cola as part of multi-cloud strategy that includes AWS

As a result, many companies are pulling their outlooks.

What remains to be seen is how resilient smaller enterprises can be in a shaky economic environment. UPS CEO Carol Tome, who leads a company that is revamping its network and laying off workers, said small businesses are in trouble.

"Many of our SMBs are 100% single-sourced from China. And this is causing so much uncertainty in the marketplace because the administration has announced, as 145% tariff on China goods starting May 2, and the elimination of the de minimis exception," said Tome. "Our SMBs, who don't have the working capital capabilities to pull forward inventory, are saying, Wow! how are we going to handle this cost increase that's coming our way. It doesn't mean that they're not trying to look for alternate forms of supply. They're working with original equipment manufacturers, trying to move to other countries, but as you can appreciate, the large companies get to take the first phone call and they're the ones that are willing to work on changing supply chain."

Those scenes from the buy side are worth pondering as you survey the tech vendor landscape. The upshot: The tech vendors that can save you money will do well. The big legacy types that are adept at squeezing you more are likely to be disrupted.

ServiceNow CFO Gina Mastantuono said the company went through "a very rigorous analysis of our business and its exposure to areas that could potentially be impacted by the current geopolitical."

She added: "What I'll tell you is that demand remains strong. The customers we're talking to are absolutely focused on the future and growth in and cost out. ServiceNow platform remains a deflationary tool that customers are leaning into in times of uncertainty."

ServiceNow is hellbent on growing its CRM business at the expense of Salesforce.

Now let's connect a few other dots. Freshworks is focused on competing with ServiceNow in the midmarket. "Midmarket companies need to automate their IT department, but a ServiceNow implementation is too heavy and expensive," said Freshworks CEO Dennis Woodside.

You can map your entire stack and find similar connections. There are vendors that will enable exponential efficiency and those that will be a drag. Know the difference.

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

A large language model's behavior issues and personality quirks should be tested as any safety risk would, according to OpenAI's postmortem after an update to ChatGPT-4o made the model sycophantic.

In a postmortem, OpenAI detailed what went wrong with the GPT-4o update, why the model was rolled back and what the company is doing to prevent personality issues in the future.

Here's the short version: OpenAI launched the update to GPT-4o and real-world interactions quickly revealed the models was a sycophant. It didn't take long until users noted that GPT-4o suddenly went over-the-top with the flattery, which was obviously insincere (as if a model could be sincere).

The postmortem on the GPT-4o rollout reads like an outage report. OpenAI's take is also instructive as model creators aim to put more personality and emotional intelligence into models.

Going forward, OpenAI said it will treat model behavior issues as launch blocking as it would other safety risks. OpenAI noted that its testing on general model behavior "has been less robust and formalized relative to areas of currently tracked safety risks."

OpenAI also said that it needs to better measure signals on model behavior and acknowledged that it won't predict every issue. The other takeaway from OpenAI is that there is no small launch.

In its blog post on the issue, OpenAI said:

"One of the biggest lessons is fully recognizing how people have started to use ChatGPT for deeply personal advice—something we didn’t see as much even a year ago. At the time, this wasn’t a primary focus, but as AI and society have co-evolved, it’s become clear that we need to treat this use case with great care. It’s now going to be a more meaningful part of our safety work. With so many people depending on a single system for guidance, we have a responsibility to adjust accordingly."

OpenAI said it has been updating GPT-4o to make it more helpful and personable. It's part of an effort to give LLMs more emotional intelligence. It has been clear for the last year that frontier models each have their own personalities. OpenAI botched the reward signals that kept GPT-4o's sycophancy in check. The solution was to roll back the model, a chore that took 24 hours.

The OpenAI post is worth a read because it highlights a few key items or me:

• LLM personalities matter.
• Model behavior is essentially the new UI and the thing that's likely to be sticky over time. After all, you're more likely to stick with a model you actually like personally.
• Qualitative features may be the most important with LLMs. Does the average bear really notice if one model has a math score 1% better than another. Ditto for code or half the other metrics that are benchmarked.
• Emotional intelligence in models (faked just like humans do) is a key feature, but can go horribly wrong.
• LLMs are simply software and the personification of them is likely to lead to more issues like this OpenAI rollback.
• Credit OpenAI for the transparency.

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

Apple reported better-than-expected for its fiscal second quarter as iPhones, Macs and iPads sold well.

The company reported second quarter earnings of $1.65 a share on revenue $95.4 billion, up 5% from a year ago.

Wall Street was expecting Apple to report earnings of $1.63 a share on revenue of $94.66 billion.

Apple CEO Tim Cook said the company's devices sold well. What's unclear is whether demand was pulled forward due to tariff concerns. Cook said there was no obvious data pointing to demand being pulled forward. CFO Kevan Parekh said Apple saw record highs for the installed base of its devices.

By the numbers:

• Apple's iPhone revenue was $46.84 billion, up from $45.96 billion a year ago.
• Mac revenue in the second quarter was $7.95 billion, up from $7.45 billion a year ago.
• iPad revenue was $6.4 billion, up $5.56 billion a year ago.
• Wearables revenue was $7.52 billion, down from $7.91 billion a year ago.
• Services revenue was $26.64 billion, up from $23.87 billion a year ago.

On the earnings conference call, Cook spoke about Apple's supply chain. He said:

• "For the March quarter, we had a limited impact from tariffs as we were able to optimize our supply chain and inventory. For the June quarter, currently, we are not able to precisely estimate the impact of tariffs as we are uncertain of potential future actions prior to the end of the quarter."
• The impact of tariffs will add $900 million in costs for the third quarter. 
• "During calendar year 2025, we expect to source more than 19 billion chips from a dozen states, including tens of millions of advanced chips being made in Arizona this year. We also source glass used in iPhone from an American company. All told, we have more than 9,000 suppliers in the U.S. across all 50 states."
• "For the June quarter, we do expect the majority of iPhones sold in the U.S. will have India as their country of origin and Vietnam to be the country of origin for almost all iPad, Mac, Apple Watch, and AirPods products sold in the U.S."
• "China would continue to be the country of origin for the vast majority of total product sales outside the U.S."
• "We don't believe that we saw obvious evidence of a significant pull forward in demand in the March quarter due to tariffs. If you look at our channel inventory, from the beginning of the quarter to the end of the quarter, the unit channel inventory was similar, not only for iPhone but for the balance of our products. Again, for transparency, you will see that we did build ahead inventory, and that's reflected in our manufacturing purchase obligations."

Constellation Research analyst Holger Mueller said there are multiple moving parts with Apple. 

"Apple is slowly but steady moving into pedestrian speed on growth. Product sales are barely up by $2 billion and services growth has slowed. Are we now seeing the growth level that cannot ignite services sales? Of course, services has a very different level of profitability, so it makes sense for Apple to pursue, as it is margin accreditive. Apple did well geographically, with all regions except for China, growing. Now the key question for Tim Cook will be – what is the price elasticity and demand curve of the iPhone. Apple is profitable enough to keep prices the same and give up margin. For now, Apple is prioritizing Indian made hardware, but that may have side effects on the local markets demand."

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

Amazon Web Services delivered revenue of $29.3 billion, up 17% from a year ago. Parent Amazon reported better-than-expected first quarter results.

Amazon reported first quarter earnings of $17.1 billion, or $1.59 a share, on revenue of $155.7 billion, up 9% from a year ago.

Wall Street was expecting Amazon to report earnings of $1.36 a share on revenue of $155.04 billion. AWS was expected to have revenue of $29.42 billion.

Going into Amazon's results the main concerns about the company were tariffs, a volatile economy and AWS growth rates.

As for the outlook, Amazon noted that its outlook is unpredictable due to "foreign exchange rates, changes in global economic and geopolitical conditions, tariff and trade policies, and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, (and) world events."

• AWS rolls out Nova Premier on Amazon Bedrock
• AWS, Amazon court developers to take Nova models for a spin, Alexa+ goes early access
• Amazon's Alexa gets a brain transplant, showcases Amazon Bedrock, Nova

With those caveats, Amazon projected second quarter revenue of $159 billion to $164 billion, up 7% to 11% from a year ago. Operating income is expected to be between $13 billion to $17.5 billion.

By the numbers:

• AWS continued to lead the earnings charge. In the first quarter, AWS delivered operating income of $11.5 billion on revenue of $29.3 billion.
• AWS ended the quarter with $189 billion backlog. 
• North American Amazon operating income was $5.8 billion in the first quarter on revenue of $92.9 billion, up 9% from a year ago.
• International operating income was $1 billion on revenue of $33.5 billion, up 8% from a year ago.

CEO Andy Jassy said Amazon was off to a good start and talked up the new Alexa+ rollout. On the AWS front, Jassy said Trainium2 and Bedrock had good traction. The mission remains "to find meaningful ways to make customers’ lives easier and better every day.”

Holger Mueller, an analyst at Constellation Research, said:

"Amazon had a good quarter, growing around the globe, and becoming more profitable year over year. Demand for its products and services remain strong, And key profit contributor AWS grew as well delivering almost to 2/3 of Amazon profit. It was a key quarter with new Amazon Nova, new Alexa+ and even a quantum chip – Amazon is doing well across the board – now the question is how will the economic uncertainty affect the consumer and thus Amazon."

Here are the key items covered by Jassy on the conference call:

• "As always, we're working to keep prices low. And with this being an uncertain moment for consumers, it's even more important than it typically is," said Jassy, who noted that Amazon will hold sales events including Prime Day in July. 
• "Looking ahead, we'll continue to refine our newly redesigned inbound network, build out our same day delivery sites and add additional robotics and automation throughout our buildings. You'll also see us expand the number of delivery stations that we have in rural areas of the U.S. So, we can get items to people who live in less densely populated areas much more quickly," said Jassy.
• Tariffs. Jassy said tariffs haven't affected pricing or demand yet, but buying ahead has been a key tactic. "We've seen some heightened buying in certain categories that may indicate stocking up in advance of any potential tariff impact. We also have not seen the average selling price of retail items appreciably go up yet," said Jassy. "Some of this reflects some forward buying we did in our first-party selling and some of that reflects some advanced inbounding our third-party sellers have done, but a fair amount of this is that most sellers just haven't changed pricing yet. Again, this could change depending on where tariffs settle."
• Trainium 2. "Trainium 2 is starting to lay in capacity in larger quantities with significant appeal and demand. While we offer customers the ability to do AI in multiple chip providers and will for as long as I can proceed, customers doing AI at any significant scale realize that it can get expensive quickly," said Jassy. "So, the 30% to 40% better price performance that Trainium 2 offers versus other GPU based instances is compelling. For AI to be as successful as we believe it can be, the price of inference needs to come down significantly."
• AI huge, but modernization runway is also huge. "Our AI business has a multibillion dollar annual revenue run rate, continues to grow triple-digit year-over-year percentages, and is still in its very early days. While there is good reason for the high optimism about AI, there's still so much on-premises infrastructure yet to be moved to the cloud," said Jassy. "Infrastructure modernization is much less actually to talk about the AI. The fundamental to any company's technology and invention capabilities to develop their productivity is speed and cost structure. If a company is to realize the full potential of AI, they are going to need their infrastructure and data in the cloud."
• Nvidia. "We've been bringing on a lot of P5s, which is a form of NVIDIA chip instances, as well as landing more and more Trainium 2 instances as fast as we can. And I would tell you that our AI business right now is a multi-billion dollar annual run rate business that's growing triple-digit percentages year-over-year. And we, as fast as we actually put the capacity in, it's being consumed," said Jassy. "We have a lot more Trainium 2 instances, and the next generation of Nvidia's instances landing in the coming months. I expect that there are other parts of the supply chain that are a little bit jammed up as well at motherboards and some other componentry. I do believe that the supply chain issues and the capacity issues will continue to get better as the year proceeds."

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

Amazon Web Services said Amazon Nova Premier, the most capable model in the cloud provider's family of in-house large language models, is generally available.

Nova Premier is the headliner of the Nova set of models AWS announced at AWS re:Invent. Nova Premier is designed as a teacher for model distillation and can improve the other Nova models in the AWS family.

Cloud providers are increasingly leveraging their own models as LLMs go commodity. Think of these in-house models as the equivalent of private label brands at retailers. AWS has Nova. Google Cloud has Gemini. Microsoft Azure just launched a set of new Phi models on Hugging Face. The strategies all rhyme as hyperscalers launch alpha models and then a set of more lightweight ones designed for specific use cases.

• AWS, Amazon court developers to take Nova models for a spin, Alexa+ goes early access
• Amazon's Alexa gets a brain transplant, showcases Amazon Bedrock, Nova
• AWS launches Amazon Nova foundation models in commoditization play
• Google Gemini vs. OpenAI, DeepSeek vs. Qwen: What we're learning from model wars

AWS said Nova Premier will be available in Amazon Bedrock. Amazon Nova Premier will be able to reason through complex tasks that require understanding of context , planning and execution across tools and data source. Nova Premier has a context length of 1 million tokens.

According to AWS, Nova Premier and Amazon Bedrock Model Distillation can be used to tailor various versions of Nova models for use case.

Based on AWS' technical report on Nova Premier, the model is an improvement on Nova Pro, but trails Claude-3.5 Sonnet-v2, Claude-3.7 Sonnet and GPT-4.5 in most categories. However, Nova Premier may be good enough for multiple use cases based on cost.

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

Cognizant CEO Ravi Kumar said the company saw strong growth in health sciences and financial services accounts and the common theme is using artificial intelligence to take out costs.

Speaking on Cognizant's first quarter earnings call, Kumar noted that "we saw healthy discretionary spending as clients continue to invest in cloud and data modernization and in building foundations for AI-led innovation."

Like other services firms, Cognizant is well aware of a volatile economic picture. Kumar explained the backdrop:

"The macro environment changed sharply in early April and continues to evolve in real time. As our clients navigate this period of elevated uncertainty, they're partnering with us to re-baseline the cost of technology deployment. And we continue to see opportunities related to productivity, efficiency and cost takeout."

That reality has been a common theme among Cognizant's rivals as well as financial services firms. Simply put, the projects that can provide returns and provide wiggle room on expenses amid tariffs and other geopolitical shocks win out.

• Cognizant eyes multiyear plan to 'agentify the enterprise'
• Cognizant: AI savvy consumers will drive spending, demand new experiences
• Cognizant Takes Flight: Acquisition of Belcan Signals Aerospace and Federal Ambitions

For Cognizant, the AI momentum is paying off. Cognizant reported first quarter earnings of $1.34 a share on revenue of $5.1 billion, up 7.5% from a year ago. Non-GAAP earnings were $1.23 a share. Cognizant's results topped expectations.

As for the outlook, Cognizant projected revenue growth of 5.9% to 7.4% and full year revenue of $20.5 billion to $21 billion, up 3.9% to 6.4%.

Kumar said several of Cognizant's large deals in the first quarter were driven by AI projects that drove efficiency and savings. Cognizant has been investing in AI-driven software for industries as well as embedded software, IoT and engineering services. Cognizant has more than 1,400 generative AI engagements at the end of the first quarter, up from 1,200 at the end of the fourth.

These engagements break out like this:

• AI-led productivity efforts to shed tech debt.
• Industrialized IT and using AI to better integrate systems.
• Agentification, which is just starting but has the most potential. "We are seeing early agentification experiments from our clients in financial services, retail and healthcare. To illustrate an example, working with Google LLM models, our teams have developed more than 20 agentic solutions, addressing many of healthcare's most pressing challenges. Our work touches efficiency, customer experience, clinical decisioning and regulation," said Kumar.

Those three areas reinforce each other and ultimately drive cost savings and innovation, said Kumar.

For now, Cognizant noted that it is seeing slower decision making from customers. "In April, we did begin to see some slowdown in client decision-making and discretionary spending. This has been more pronounced with select clients in certain segments, including health sciences and products and resources. We believe the impact has been isolated so far in the second quarter, and we are closely monitoring development for implications across our broader portfolio," said CFO Jatin Dalal.

However, Dalal noted that the current backdrop is "presenting opportunities" as enterprises prioritize cost optimization, vendor consolidation and productivity. Health sciences and financial services is seeing strong demand. Communications, media and technology revenue was flat.

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

Meta raised its 2025 capital expenditure outlook to $64 billion to $72 billion to support its AI buildout and "expected cost of infrastructure hardware."

CEO Mark Zuckerberg quipped about Meta's spending on AI data centers during its LlamaCon conference this week. Meta had projected capital expenditures of $60 billion to $65 billion for 2025.

Going into the report, there were concerns about AI data center spending.

• A nuanced view of AI data center buildout concerns
• AI infrastructure becomes one big leveraged bet
• Meta launches Llama API, Meta AI app
• Meta plans to end 2025 with 1.3 million GPUs and $60B to $65B spent on AI

Meta can double down on its AI spending due to strong results in the first quarter. The company reported first quarter earnings of $16.64 billion, or $6.43 a share, on revenue of $42.31 billion, up 16% from a year ago.

Wall Street was looking for first quarter earnings of $5.28 a share on revenue of $41.4 billion.

Zuckerberg said the first quarter was a strong start and Meta AI was closing in on nearly 1 billion monthly active users. Meta said daily active people across its properties--Facebook, Instagram and WhatsApp--was 3.43 billion. and average price per ad was up 10% from a year ago.

As for the outlook, Meta projected second quarter revenue of $42.5 billion to $45.5 billion compared to estimates of $44.03 billion. Meta also said that it continues to "monitor an active regulatory landscape, including legal and regulatory headwinds in the EU and the U.S."

Speaking on the earnings conference call, Zuckerberg said:

"The major theme right now, of course, is how AI is transforming everything we do, and as we continue to increase our investments and focus more."

AI is driving new experiences, ad optimization, business messaging and building out Meta AI and AI devices, he said. 

Meta is also using AI to train an ads ranking model that's twice as efficient improving ad efficiency. The generative ad recommendation model is trained on thousands of GPUs. 

Regarding investments in AI infrastructure, Zuckerberg said the company continues to invest but is also optimizing its infrastructure and tweaking models to improve returns. He also added that it's important that Meta develops Llama models so it can control its own destiny. 

The other reality is that Meta still can't meet the company's demand for compute resources. 

Holger Mueller, an analyst at Constellation Research, said:

"Meta needs to ramp up it's capex as it needs to remain competitive with Google for the demand signals that matter to advertising. With Gemini 2.5 Google is taking share of searches and AI use of consumers that helps it's ad business. The question is of course how long can Meta - running Nvidia - can compete with Google running on TPUs -  compete on the TCO side."
 

Larry Dignan

Editor in Chief of Constellation Insights Constellation Research

About Larry Dignan: Dignan was most recently Celonis Media’s Editor-in-Chief, where he sat at the intersection of media and marketing. He is the former Editor-in-Chief of ZDNet and has covered the technology industry and transformation trends for more than two decades, publishing articles in CNET, Knowledge@Wharton, Wall Street Week, Interactive Week, The New York Times, and Financial Planning. He is also an Adjunct Professor at Temple University and a member of the Advisory Board for The Fox Business School's Institute of Business and Information Technology.&nbsp; <br>Constellation Insights does the following: Cover the buy side and sell side of enterprise tech with news, analysis, profiles, interviews, and event coverage of vendors, as well as Constellation Research's community and… Read more

Microsoft handily topped third quarter targets and said Azure delivered revenue growth of 33%. However, Microsoft said its cloud capacity in the fourth quarter will continued to be constrained. 

The company reported third quarter net income of $25.8 billion, or $3.46 a share, on revenue of $70.1 billion, up 13% from a year ago.

Wall Street was looking for Microsoft third quarter earnings of $3.22 a share on revenue of $68.42 billion. Analysts were modeling Azure growth of about 30%.

During the quarter, Microsoft adusted its relationship with OpenAI. Microsoft CEO Satya Nadella said the company's cloud and AI units were enabling customers to drive growth while cutting costs.

Amy Hood, CFO of Microsoft, added that Microsoft Cloud saw strong demand across with third quarter revenue of $42.4 billion, up 20% from a year ago.

Hood said: "While we continue to bring data center capacity online as planned, demand is growing a bit faster, therefore we now expect to have some AI capacity constraints beyond June."

Nadella said Microsoft will continue to invest heavily in infrastructure but will adjust buying as needed. 

"The key thing for us is to have our bills and the position for what is the workload growth of the future. There's a demand part to it. There is the shape of the workload part to it, and there is a location. You don't want to be upside down on having one big data center in one region when you have a global demand footprint. You don't want to be upside down when the shape of demand changes.

"We just want to make sure we're building accounting for the latest and greatest."

Hood said she was hoping cloud demand and supply were in balance by the end of Microsoft's fourth quarter. "We are going to be a little short, still safe, but a little tight as we exit the year," she said.

By the numbers:

• Microsoft's third quarter revenue in the productivity and business processes unit was $29.9 billion, up 10% from a year ago.
• Microsoft 365 Commercial products and cloud services revenue was up 11%.
• 365 Consumer products and cloud services revenue was up 10%.
• LinkedIn revenue in the third quarter was up 7%.
• Dynamics sales were up 11% in the quarter.
• Intelligent Cloud revenue was $26.8 billion, up 21% from a year ago.
• Windows OEM and Devices revenue was up 3% as Microsoft's More Personal Computing unit delivered third quarter revenue of $13.4 billion, up 6%.

On a conference call, Nadella said the following:

• Microsoft opened 10 data centers in 10 countries across four continents. 
• Model capabilities are doubling in performance every six months. 
• Microsoft continues to optimize infrastructure. "You see this in our supply chain, where we have reduced lead times for new GPUs by nearly 20% across our blended fleet," said Nadella. "We have increased AI performance by nearly 30% and cut our cost per token."

Constellation Research analyst Holger Mueller said:

"Microsoft had another good quarter, with all its divisions growing. Even the often lukewarm and challenged Windows / OEM business grew. Interesting enough LinkedIn has fallen into single digits growth as well, which is interesting as Talent Acquisition remains central and important for enterprises. Microsoft is on track to bring operating income to 50% of revenue – if all goes well in its closing quarter."

Here's a look at the outlook.