GDP down, employment growth down, inflation up
Optimism: Meta finds an AI business model
Welcome to Cautious Optimism, a newsletter on tech, business, and power.
Wednesday, friends, and it’s going to be a good one. Today in CO we’re looking at earnings in the context of macro uncertainty, GDP results for Q1, and a look at how Meta might find a way to generate more AI cash flow. We also have an interlude for recent startup rounds. Big earnings after the bell today. To work, yeah? — Alex
p.s. We did a Substack Note yesterday? It didn’t make it to the main CO feed, so click here if you want a rundown of the Amazon-POTUS dustup from yesterday.
📈 Trending Up: My friend Ed Zitron’s blood pressure … our shared connection to reality … defense of Medicaid? … German GDP … Spotify … Writer … the chance of war between Pakistan and India … whatever this is …
Truely, which is taking on Cluely, which was based on a tool that allowed for AI during use technical interviews sans getting caught.
Microsoft’s international bona fides, as it races to shore up its ability to sell in the European Union …
📉 Trending Down: Pizza hut same-store sales … German inflation … OpenAI’s taste? … crypto oversight … capitulation … Sarah Tavel’s days-per-week at Benchmark … Android apps? … Chinese PMI … SMB health …
Economic warning bells
Snap’s earnings yesterday had a lot to like. Turning in a minor revenue beat and a global DAU beat, Snap also reported its third consecutive quarter of free cash flow (+$114.4 million), and improvements to both its net loss and adjusted EBITDA.
Shares of Snap are off around 14% this morning. Why? Not because of what Snap managed in the first quarter, but instead what the company failed to say about its second quarter. Here’s what Snap’s CFO Derek Andersen had to say about the current moment during the company’s earnings call:
Given the uncertainty with respect to how macroeconomic conditions may evolve in the months ahead and how this may impact advertising demand more broadly, we do not intend to share formal financial guidance for Q2. While our top line revenue has continued to grow, we have experienced headwinds to start the current quarter[.]
Partially to blame for rocky economic conditions for the advertising-driven social media platform are specific White House policies, with Anderson saying later in the same call that Snap has “heard from a subset of advertisers that their spending has been impacted by the changes to the de minimis exemption.”
How many American tech companies were riding a Temu-Shein tailwind?
That’s one company’s guidance. To avoid summiting Snap’s Q2 molehill, let’s turn our eyes a bit more broadly. Here’s a rundown of recent stories that made me slink lower in my chair:
Consumer confidence sinks to lowest level since May 2020 [CNN]
UPS Says It Will Cut 20,000 Jobs in Efficiency Drive [NYT]
Port of Los Angeles says shipping volume will plummet 35% next week as China tariffs start to bite [CNBC]
Trump’s Cuts to Science Funding Could Hurt U.S. Economy, Study Shows [NYT]
US economy expected to have slowed sharply at start of Trump's 2nd term [ABC]
By the numbers
That last item was a prelude to today’s economic data. First, ADP announced that private-market employers added a slim 62,000 jobs in April. Estimates were for a +115,000 number. A material miss, in other words. Consider pressure on JPow for a rate cut to have gone up.
Worse, the early Q1 GDP print came in at -0.3% (annualized), worse than the anticipated -0.2%.
And perhaps even more poor, new inflation data is hot. Here’s the BEA:
The price index for gross domestic purchases increased 3.4 percent in the first quarter, compared with an increase of 2.2 percent in the fourth quarter. The personal consumption expenditures (PCE) price index increased 3.6 percent, compared with an increase of 2.4 percent. Excluding food and energy prices, the PCE price index increased 3.5 percent, compared with an increase of 2.6 percent.
That PCE gain of 3.4% was the highest figure since early 2023 and worse than anticipated.
To sum: GDP down, employment growth down, inflation up.
Meta finds an AI business model
Yesterday at Meta’s Llamacon — an event dedicated to its Llama family of AI models, and not a dramatic group reading of the childhood hit Llama Lalama Red Pajama — the social giant announced a few key items:
Llama API: Meta will offer access to its models in a hosted format. Access is limited to start, but should expand as soon as the API finds its sea legs.
Partnerships with Groq, Cerebras: Meta said that “experimental access to Llama 4 models powered by Cerebras and Groq are now available by request, offering a convenient way for developers to experiment and prototype use cases before scaling with their chosen vendor.”
Groq and Cerebras, both TWiST500 companies, provide hosted compute and chips to run AI inference. That Meta is working with them is good news for both startups — recall that Cerebras wants to go public — and indicative that Meta intends to stay pretty open in its AI approach.
But more importantly, Meta can now wring cash directly out of its AI work. Previously, Meta made pretty good AI models, used them internally, and shared them with the world in a semi-open source fashion. Now, it can charge for API access and rip gross profit from its frontier model homework.
Good. Recall that Meta asked its rivals for help covering its Llama-related costs. That effort seemed to go nowhere, but showed that even Meta can’t spend infinite money forever sans return. And no, we’re not making a VR joke here.
Just how much market share Llama’s API can secure is a question that I file next to our usual queries regarding xAI and its Grok family of models. Good to see competition, but unclear if the products in question can challenge Anthropic, Google and OpenAI.
A grip of recent, interesting startup rounds
Glacier raised $16 million for recycling robots … LayerX raised $11 million for enterprise browser security … VSimple raised $7 million for its AI agent technology … Blooming Health raised $26 million for AI-empowered ‘social care’ … Pistachio raised $7 million for its cybersecurity work … Near Space Labs raised $20 million to use aircraft for geo-imaging … Zoe raised $30 million to connect you with an RIA … P-1 raised $23 million for genAI in the physical engineering world … and Astrape Networks raised €7.9 million for data center data transfer work …