00:00Alphabet even thinking about a 100-year bond sale, what's this about?
00:05Well, it was just last week that we got these staggering capital spending plans from the big tech giants.
00:11First, it was Alphabet saying it could spend as much as $185 billion this year on this AI build-out that they are planning.
00:19Then Amazon the next day said that it could spend $200 billion on CapEx.
00:24So these are really staggering numbers. This is the most amount of money that any company has ever spent in terms of CapEx on something like this.
00:32But one of the big questions at the time was whether investors were going to be willing to give them the money to be able to make these investments.
00:38Both companies, of course, have a lot of cash, but they don't want to spend all that money out of their cash.
00:42So they went to the markets, and we got the answer today in Alphabet's case, and it was a resounding yes.
00:47Investors really want to invest.
00:49They went out expecting to raise $15 billion in USD.
00:54They got so much demand that they bumped that up to $20 billion.
00:57They're also going to issue their first instruments in British pounds and in Swiss francs also.
01:05So we're seeing the one that you were referring to, the 100-year bond, is going to be in the U.K.
01:09They're offering that 100-year bonds.
01:11You don't really see these really very often at all.
01:14It's usually by governments or sometimes universities.
01:17The University of Oxford has issued them in the past, but it's very rare to see those coming from companies.
01:23The last time we saw something like this, Motorola actually issued 100-year bonds in 1997.
01:28Believe it or not, I was covering Motorola in 1997, and you could not expect a future for that company that we've seen since then.
01:35Yeah, it's had quite a fall from grace, so to speak.
01:41But can you help us reconcile as well when it comes to these hyperscalers or these big tech companies and how they're tapping the debt markets?
01:49How are they still able to do so and get pretty solid investor demand at a time where Max Evans, you take a look, it's down from the October highs.
01:57And then there are still these concerns about circular deals, circular financing.
02:03Yeah, there are still some questions about whether these big AI investments are going to pay off.
02:08And we went through that.
02:10Last year, certainly you saw a bunch of these companies take a hit because of how aggressive their spending plans are.
02:15I think what you're seeing from at least these big four or five companies is that they are going to step up spending because they see this as a competition to lead in the AI race.
02:23Nobody wants to be left behind.
02:25And we've seen this many times before in things like search and mobile operating systems and web browsers where one company tends to win.
02:32They tend to take the vast majority of the profits from that business.
02:36And you see Alphabet, Amazon, Microsoft, Meta, all of them are competing very aggressively.
02:41So you're going to make these investments now.
02:44They have the cash.
02:45They're able to go, as we saw today, they're able to go to the markets and raise this money through bonds also.
02:50They want to make these capital investments now in order to be able to win the race or at least compete very aggressively to try to win the AI race for these AI customers in the future.
02:59Peter, to your point that you were covering Motorola back in the 90s, I'm just curious, did you guys see the dot-com bubble bursting?
03:09Did you see it coming?
03:10Because right now what we're really trying to do is trying to figure out what all of these deals mean.
03:16Because this exuberance that we're seeing around artificial intelligence and all of the different signals that we're getting, is this just noise?
03:22Or could it really forecast something more gloomy down the line?
03:28Well, it is a good question.
03:30I mean, one of the reasons that companies tend not to issue bonds of this length is because investors are nervous about their future.
03:37And when you look at a couple of the cases that we're talking about, certainly Motorola, you have good reason to be nervous about their future.
03:42This was actually before the dot-com bubble burst.
03:45They were the leader in the mobile phone business at that time.
03:48They were by far the best competitor.
03:50They then faced competition, of course, from Nokia and BlackBerry and Apple.
03:55After that loss, they got sold.
03:56They were not able to maintain their independence.
03:58Another company that's maybe a better example of the risks of these century bonds, as they call them, is JCPenney.
04:04JCPenney, the retailer, was very strong at one point in time.
04:08They went out there, raised money for 100 years, and they went bankrupt 23 months later.
04:12So I think that's a lesson for investors.
04:14Now, of course, we don't expect anything like that for Alphabet at this point.
04:18It's a company with a very strong business, growing very quickly, making these aggressive investments.
04:23But 100 years is a long time, so investors are taking on some risk here.
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