Ray Wang, Constellation Research founder and chairman, joins 'Squawk Box' to preview the 'Magnificent Seven' tech earnings, state of the AI race, Google's AI capabilities, the road ahead of Tesla, and more.

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

Ray Wong, founder and chairman of Constellation Research, shared insights on the performance and prospects of major technology companies, focusing on Google and Tesla. Wong noted that Google, free from China-related risks, is demonstrating significant improvements in AI, with developers and system integrators recognizing its lead, particularly in products like Gemini. He suggested that while Google may lag in large language models, its AI technology is widely adopted and effective in practical applications, contributing to steady growth in its search, ad, and cloud services.

Wong also commented on Tesla, observing that its stock is influenced by headlines and long-term bets on AI, robotics, and energy. He emphasized the importance of leadership at Tesla, particularly Elon Musk's role, while acknowledging the challenges of scaling the business. The discussion also touched on the broader 'Mag 7' tech firms, with analysts noting the high expectations and potential for short-term market pullbacks, but optimism for growth in areas like AI and data centers.

Why Google might be in the lead in their AI capability

Big tech earnings kick off tomorrow with Google and Tesla both set to report. Joining us right now is Ray Wong. He's Constellation Research founder and chairman. And Ray, first of all, thanks for being here. We're trying to figure out what to expect from the Mag 7. This is going to be our first look at some of those numbers. What are your expectations overall? Well, overall, the Mag 7 are going to operate differently. We have the folks that are completely AI enabled, with the folks with China risk. You have to factor those two things in place. So on the Google side, they don't have the China risk. But the question is, is AI going to crush the search and ad business? And is Google Cloud Services going to continue to grow? The short answer is, we're actually seeing a lot of improvements on the Google side in terms of AI. We actually think they might be in the lead in terms of their AI capability. But the question is, how are they commercializing on the AI side? But so far, what we've noticed is services continue on the cloud services and the Google search side and the ad side are probably going to continue in like 8% to 10% growth. And on the Google Cloud side in the high 20s. Google's stock is flat for the year to date. All those questions that you brought up have kind of played out in investors' mind. Where do you come down on this? Is this a good time to jump in? Do you believe it's going to win on the AI front? I actually think it's going to be one of the three winners in AI. And actually, it is a good time to go in. If you look at that P ratio versus everyone else, the overhang is really coming from antitrust and this perception that they're behind in AI. But when we talk to developers, when we talk to system integrators, I was actually in India last week doing that. They all recognize that Google is ahead. In fact, Google is ahead of Microsoft on the AI front in terms of the advancements, but they might be behind on the big LLMs that are getting a lot of the money and a lot of the talent. Explain how people think they're ahead of Microsoft or the people you spoke with in India. Because the technology behind what's going on from V03, from Gemini, it's actually being used by developers. It's actually being used on the coding side. It's actually being used to build products. We have a client that basically, with 10 people, beat out another client with 110 people to do the same job in half the time and half the price using Google Gemini. And you've got a price target, I think, of $210 for Google, for Alphabet. So you're a big believer here. What about Tesla? Because it is one that if you look over the last year, it's up 30%. But just for the year to date, it's down 13%. Well, Tesla's trading on headlines, and that's a little bit different. And it's a question if you believe in the long-term thesis of autonomous robots, power, energy, and what Elon's able to do there, and if Elon's actually going to be focused on Tesla. And the answer is no, don't buy into the Tesla stock. But if you actually think this is going to be one of the winners in terms of where energy and robotics and automation are going, and especially on the AI front, then it's a good bet. Well, where do you come down on that? I'm a big Tesla believer, and I actually believe that whether they build cars or whether they build robots or deep tech infrastructure, they're going to be one of the pioneers for American innovation, and in terms of where tech's headed. Is Elon the key man who has to be there in order for this to all come about? The short answer is yes and no. Elon, on one hand, drives the vision, gets everyone out there. On the other hand, he creates a lot of chaos, a lot of turmoil for a lot of the executives that are there. And so you have to be a very special person to be able to operate within Elon's empire. So for example, take the SpaceX CEO. She's doing an amazing job, right? That's a very different story than what's going on right now with the overhaul of Tesla. I mean, they're flipping all the executives out through Tesla. There's been a view that people want Elon back sleeping on the factory floors, and that's how you get things done. It doesn't sound like you're necessarily in that camp, though. I think depending on where you are in the stage of business, where Tesla is, they need someone that can help them scale out, think about what the next model's supposed to be. You might not make the bet on Robotaxi today, but you may make the bet on automated factories that are coming back to the U.S. that Elon's able to do. So you'd want Elon focused on Grok. You want Elon focused on Optimus. But you need someone to take the business and scale at Tesla, which is very different. All right, let's talk a little more broadly about all of the Mag 7, not just these two that are reporting this week. We had Katie Stockton on earlier this morning. She's a technician, and her concern is there has been so much straight upward movement for the markets that it's hard to go into this earnings season and not potentially disappoint, unless you give investors everything they want to hear and more. You could see a pullback with some of these stocks. What do you think of that thesis? There's so much riding on the Mag 7 right now. I mean, it's priced to perfection. And if you don't hit, the numbers don't come out, the expectations don't come out the way, you're going to see a little bit of a pullback. But the challenge, where do you put money in at this moment, right? This is flight to safety, and this is also risk on at the same time. And it's confusing to a lot of folks that are on the technician side. But if you're looking at where the market's going to be in Q3, Q4, what you're hoping for is tax cuts come into play, tariff stability is there, a little deregulation is in place. And the $15 trillion, let's say it's not even $15 trillion, a trillion of foreign direct investment comes into play. We're actually posed for some growth, especially on data centers, especially on AI, especially on those key components of the Mag 7. I will say that was Katie's short-term view versus her long-term view that over the next 12 months, you could see 68, 80, I think, on the S&P 500. So she's talking about a potential pullback, but then powering back through. Exactly.

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Why Google might be in the lead in their AI capability

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Rise of AI