The one about measurement
On the limitations of numbers
Friends,
I hope that all is well with you and yours, and that this e-mail finds you on a boat with shoddy connection, in the tropics, three months after I sent it.
Today, we delve into numbers and the often unconsidered limitations thereof. We also take a look at the big tech firm earnings - featuring Alphabet, Microsoft, Meta, and Amazon - and discover that not all AI related capex is the same. Super Micro Computer and Apple round off the news section.
Now accepting keynotes for 25Q1-25Q3
Every year for the last decade or so, I have created three main presentation decks. For 2025, however, I have (for the first time) added a fourth due to popular demand. They are:
What to Do When You Don’t Know What to Do: How to turn change into a competitive advantage. (Based on the new book by the same name.)
Leadership in a Time of Change: How to steer an organization through a sea of uncertainty.
Resilient Retail: How to build a profitable retail business in the modern marketplace. (Based on the 2025 follow-up to the highly praised 2022 white paper The Gravity of e-Commerce.)
Artificial Intelligence Beyond the Fantasy: How to understand the narratives, risks, opportunities, and best uses of a new technology.
If you want to book me for your event, corporate speaking slot, or workshop, merely send me an email. To make sure I am available, please do so at your earliest convenience; my availability is limited and the schedule tends to fill up fast. More information may be found here.
A couple of updates before we go-go
On Sunday, the rest of the family went away to hang out with the sister-in-law and her family for four days while I remained at home to work. I fully admit that the first hour in tranquil peace was glorious; I even put on that one song. But it is fascinating how quickly you miss everyone.
Parents to small children dream of having alone time, yet the reality is that while the workdays are longer and more effective, the house immediately feels cold and empty. Eating dinner alone is dull. I even slept worse.
Families, man. They get you right in the feels.
Anyway.
Moving onto markets and artificial intelligence, which today are one and the same.
Tech earnings are in and, well, they were rather interesting. As predicted in this space, most of the notable companies posted very good top line figures. Alphabet smashed expectations; Amazon too reported excellent numbers. Each firm’s stock price went up. Microsoft and Meta also came in stronger than believed, but were conversely met by market skepticism. The difference? Artificial intelligence related capex.
To be clear, as if anyone would believe otherwise, the firms all spend eye-watering sums of money on AI and expect to dole out even more in 2025. But a look beyond the capex reveals divergent narratives.
As Adam Clark noted for Barron’s, Meta’s problem is that AI benefits are hard to quantify, while costs are easy to see. Microsoft has an easier time quantifying benefits (the technology accelerates revenue from its cloud services), but is now investing so much that it is starting to hurt margins. Q3 capex was up 50% YoY. So far this calendar year, Microsoft has put $53B into it - the equivalent of 28% of the company’s revenue. By contrast, the average for 2014-2023 was 12%. Meta has stated that it intends to spend between $38B-$40B, which would represent 24% of its projected revenue.
Alphabet is, of course, also putting a rather hefty sack of change into AI (Q3 capex $13.1B; an increase of 62% YoY), but sits at a lower ratio and, like Microsoft, can more easily demonstrate impact. The company is also rather careful to emphasize that it balances its investments with other growth areas while keeping a close track of costs. The same goes for Amazon with AWS.
In other AI news, Ernst & Young declared that it refused to provide accountancy services to Super Micro Computer any longer. In an awfully written resignation letter, EY stated that they were “resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations”.
Translated to English, it means that something is rotten in the state of Denmark. The company management (and by extension the board) is either incapable or unwilling to provide financial documentation that fulfills the requirements made by law and industry praxis. The question is why the hell not.
A glance at the financials tells us that profit margins are shrinking rapidly, but that is obviously not reason enough for an auditor to abandon ship. What appears more likely is that short-seller Hindenburg Research was onto something when it argued last month that Super Micro had suffered from “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues”.
Whatever the reason, this is another story very much worth paying attention to.
Lastly, with neither pomp nor circumstance, Apple’s released its official AI update (iOS 18) earlier this week. The lack of communication is rarely a good sign; if companies are proud of something, they usually tell anyone willing to listen and most who are not. The market response was also one big “meh”. I have the update on my iPhone and can only agree. So far, the only thing I have noticed is that the portrait function on the camera appears slightly worse.
Underwhelming delivery has become a worryingly common pattern in AI. For all the talk by the big firms that invest heavily in the technology, the glowing reviews beyond cloud services are relatively few and far between. Perhaps the question is what will end first: consumer patience or company funds.
Moving on.
Measurement in complexity
On the limitations of numbers
For various reasons, our daily lives have become largely defined by data and models. Firms no longer use numbers to merely inform decisions, but increasingly to also make decisions. After all, the reasoning seemingly goes, if we cannot make sense of the constant uncertainty in which we find ourselves, we had better rely on those who (or that which) can.
Yet for all the supposed progress, most companies still struggle to make sense of the world. Why? If more data mean more information, and we have more data than ever before, we (or whatever tool we use) should be able to make more informed decisions than ever before. Our odds of survival and prosperity should improve. And yet, the vast majority of companies still fail. According to data from the US Bureau of Labor Statistics, 23.2% of private sector businesses fail within the first twelve months. After five years, the number has more than doubled. Ten years on, 65.3% of businesses have closed. And the firms that are likely to rely the most on data, i.e., tech companies, do even worse. Less than 30% are left standing after 10 years.
The explanation may yet again be found in complexity.