00:00This seems like a real sign of the times, the fact that Amazon is tapping the public bond markets for the first time since 2022.
00:08What does this say? Why tap the bond markets versus look to free cash flow, for example?
00:15Well, I think you better get used to it and get used to having me on because this is not going to be the first conversation.
00:21There is a lot of money to raise over the next few years because there's a lot of money to spend to build infrastructure,
00:27because there's just a tremendous amount of demand.
00:30The type of demand I don't know if we've seen for any product, maybe since the automobile started to come around to chase the horse and buggy.
00:39So what does it mean? It means that Amazon, along with Meta and Microsoft and Alphabet and Oracle and probably a host of others,
00:51think that there is money to make out there.
00:56And the reality is they can't make that money over time unless they put the money into infrastructure right now.
01:03Many of the companies are very differently positioned.
01:06Amazon is much differently positioned than some of their peers, which gives them, I think, an enormous leg up.
01:11We can talk about that in a second. But this is just the start of things to come.
01:15But just the start of things to come. And it's an interesting chicken and egg situation because, I mean, you think about Amazon and some of their peers.
01:22They have best in class credit ratings. But part of the reason they have those ratings is because scarcity creates value.
01:30They don't issue that much debt. And I'm not suggesting that they're going to get downgraded anytime soon, Robert.
01:35But I wonder what you make of that dynamic.
01:38It's actually a bit of a misnomer. They do have a lot of debt.
01:41You know, Amazon's got $50 billion of debt out there. And if you include all their leases, it's $350 billion of debt.
01:47If you look at names like Apple, they're sitting on $100 billion of debt.
01:52Oracle is over $100 billion of debt. These companies have raised money over the last handful of years.
01:59The real question is, why haven't they raised more?
02:02And simply, the vast majority of the funds that they were making were used for shareholder returns.
02:08And now that they have something real to spend it on, quite frankly, the government limited a lot of what they can do from an M&A perspective.
02:14And we always thought they should raise more. If you think about their weighted average cost of capital, you know, their weighted average cost of debt is effectively zero.
02:21And their cost of equity is 10 percent. So why weren't they issuing even more?
02:25Why didn't they have $200 billion of debt and buy back more stock?
02:28And I think these guys have foresight. It's as simple as that.
02:31But the CEOs, whether it's at Meta or Microsoft or Alphabet, these guys saw this sort of spending spree coming.
02:40And they wanted to make sure that their pockets were deep enough that when they needed to spend the money, it was going to be there.
02:46But quite frankly, the amount of money they're going to need to spend over the next few years is even bigger than that.
02:50We wrote a note the other day saying that the big five or six were going to spend about $3 trillion over the next five years on AI CapEx.
03:00And when you start throwing in the others like CoreWeave and Anthropics and all the others, you know, maybe that number is more like $4 or $5 trillion.
03:05But to your point, though, Robert, just about the idea that some of these companies were already sitting on a lot of debt.
03:10I do want to go back to Oracle sale a month or two ago, $18 billion bond sale.
03:16I mean, they were already sitting on like $100 billion in debt as it was.
03:19They kind of dominate several of the key investment grade indexes.
03:22And I'm wondering if as we see more of these larger companies take on more debt for something that at least right now is still a questionable ROI,
03:30is there any concern about any sort of risk, systemic risk, to some of those broader bond indices if anything does intentionally go wrong?
03:42Well, the general answer is no.
03:43It's certainly company specific.
03:46You know, other than Oracle, the other names that we're talking about are all AA or maybe AAA companies.
03:52They're actually generating massive amounts of cash.
03:55They've got little to no leverage.
03:57In fact, many of them have negative net leverage.
04:00So the amount of financial flexibility that exists in those systems is extraordinarily high.
04:06If they ended up making mistakes in their sunk costs and they have to pull back in the next few years on their CapEx,
04:11I don't think that's going to matter whatsoever in terms of the credit rating.
04:14We haven't seen one of these big companies have a credit rating turn negative.
04:18Oracle is a little bit different.
04:20Oracle, over the last handful of years, has been spending money on acquisitions and shareholder returns, levered their balance sheet to triple B, and is really pushing the limit.
04:30The way to get around that for a name like Oracle, though, is you start doing off-balance sheet financing.
04:36They're not the other ones.
04:37You know, Intel was the first really to start just with Foundry, JV, and then we saw Meta, and we're likely to see Oracle.
04:43So there's still a lot of flexibility in the system.
04:46This whole concept that we're about to enter some sort of bubble that's about to burst, I don't think people could be more wrong.
04:53There's a bubble, but it's a bubble of demand, and it's going dramatically, dramatically bigger.
04:58I don't see risks throughout the system at all.
05:01Now, listen, could there be idiosyncratic risks?
05:03Yes.
05:03As you move down the curve, as you move into high-yield land and you start thinking about names like Corweave, the risks get higher.
05:10But the reality is there's revenue on the back end of that.
05:13And for all those naysayers that don't believe that those revenues are there, I think they're going to be proved sharply wrong.
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