00:00I'm interested in there's a great line in that big take coming from Stacey Raksin over at Bernstein saying basically Sam Altman is either going to drive this economy lower.
00:09We're going to see the world economy tank or he's taking us to the promised land.
00:13Which way are you seeing it going?
00:15I'm not sure it's either or. First off, thanks for having me.
00:19I'm joining you from Toronto today where we're doing a FIMO Eurasia Group U.S. Canada Summit.
00:25So there's a lot of discussions on A.I. and other things like that going on here.
00:30But I'm not sure it's all good or all bad. It's someplace in between.
00:34And there are a lot of things to watch. I love the big take already.
00:38I caught it in the middle of the night and sent it out to a number of of coworkers, especially the graphic in there showing that circular nature.
00:45That's very much like some of the stuff we saw go on in previous bubbles.
00:50But as the as your reporter commented on, you've got right now it's backed by big companies with very solid balance sheets and they're generating revenue off of that.
01:01The one thing that we keep in mind for our investors, though, is that you've also got a very concentrated stock market because of that circular nature and the interrelated deals that they're all doing.
01:14If investors start questioning one, you could get a ripple effect.
01:19But we it would be a ripple effect.
01:21Perhaps you lead to some sort of pullback, which we haven't had since April.
01:26But we don't see it rippling through the economy and taking down major swaths to the economy.
01:31So it's a very nuanced answer.
01:34But it's it it's rarely ever all black or all white.
01:39Carol, what we are trying to see, though, is actually who takes the most of the profits available from all these deals.
01:45NVIDIA clearly massively revenue generating and profit generating.
01:49But then you think of Oracle and some of the questioning about how much of a margin they make on a three hundred billion dollar contract for open AI.
01:56How much do you have to do the due diligence on individual names right now?
02:00Well, I think you really do.
02:02The market's not much because, I mean, the you know, one of the phrases we've been using all week is the market seems to be acting like no news on economic data or anything.
02:10No news is good news.
02:11And off we go to new highs.
02:13But you have to be very discerning.
02:15But we've always been a combination of top down and bottom up in what we're looking at things.
02:21And you also have to, especially in a diversified portfolio, realize you might be over concentrated even if you're doing individual securities.
02:29If you own a passive index fund, if you own an AI specific or a technology specific ETF, you've concentrated it even more.
02:38And so it's doing some of that and it's stepping back and doing some good portfolio hygiene, looking back perhaps at where we started the year, taking some of those gains off the table and shifting them around to other sectors that are potential beneficiaries.
02:51Because we have energy, we have nuclear, we have a lot of things that have to happen for those for the switches to go on in those data centers.
02:59Carol, you've had a decorated career in markets as a chief investment officer.
03:04I just want to run the mechanism that I reported overnight past you again, a special purpose vehicle where you have both debt and equity pulled together by a group of investors who buy GPUs.
03:18And then in this case, XAI rents those GPUs or leases them from the special purpose vehicle.
03:25I haven't heard of this structure before, but just as a structural consideration in financial markets and the debt load and where it's placed, how do you react to that?
03:37I think it'll be a really interesting earnings season because I'm sure a lot of analysts will be asking those detailed questions because we're starting from a place with a lot of those companies other than perhaps Oracle, as I understand it.
03:52We're starting from a place of pretty pristine balance sheets.
03:55You also have tax benefits that accrue to some where I'm not sure exactly how their accounting works in terms of who's expensing everything, who's capitalizing some, but you have to capitalize less stuff now.
04:10So if you've got the earnings to support writing it off, it's less damaging to the balance sheet.
04:15But it is indicative of the fact that Wall Street staffed up at the end of last year with an awful lot of deal-making people that have had a lot of time to think really creatively about how to put this stuff together.
04:26So as an investor, it makes a job that much more difficult because, to your point, you really have to figure out what's on the balance sheet, what's not on the balance sheet.
04:36Carol, there's a lot we don't know as well, like the tax consideration.
04:40I'm trying to get after it.
04:41But Oracle, $100 billion of debt, swinging to negative free cash flow for the first time since 1992.
04:49I've been tracking the data.
04:51Do you?
04:52Yeah, we track some of it.
04:54And we've got a lot of analysts in our global asset management and capital markets units that get really specific about that.
05:01I don't as much anymore on a macro basis, but I listen really hard and I ask the questions.
05:06And I started a couple months ago asking some of the research teams, how are they financing these deals?
05:13How are they dealing with, you know, when does it shift to debt?
05:17Because at the time, it was all coming out of cash flow.
05:19And I wanted to understand, too, what goes right through the income statement so it's never showing up on the balance sheet because an NVIDIA chip isn't going to last 20 years.
05:28And anything less than 20 years, you can technically write off against earnings in the period you do it.
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