00:00Let's turn to today's big number, $25 billion. That's how much Amazon's looking to raise in its
00:05latest U.S. bond sale. According to sources, the offering could ultimately grow even larger
00:10depending on investor demand. The sale comes as Amazon ramps up spending on AI infrastructure.
00:15The company's marketing debt in as many as eight tranches with proceeds intended for general
00:19corporate purposes, including debt repayment, acquisitions, and capital expenditures.
00:25Bloomberg Intelligence says the company's CapEx is likely to top its current $200 billion guidance
00:30for this year, and next year could approach $300 billion as demand for AI continues to outplay
00:37supply. Robert Shiffman of Bloomberg Intelligence here with the React. Now, capital expenditures can
00:42also go up because it's more expensive to do things, right? You build a data center, you have
00:49construction labor inflation, as we talked about through the show, memory price inflation, but
00:54you're specifically looking at the weighted cost of capital, why the corporate bond market works
00:59well, and now you're looking at the pro-forma cash amount. Give me your thesis.
01:03Well, first of all, $25 billion, it's not that big of a number.
01:06Right.
01:06These guys have already...
01:07We just said it was the big number, Robert.
01:09Well, it's getting bigger.
01:10Okay.
01:10And it's probably going to be more than...
01:11That's why I asked you about the pro-forma cash.
01:13They have raised almost $70 billion across currencies this year already.
01:18Right.
01:18And their cash number is up above $150 billion. This clearly implies that spending is going
01:24up. It's going up for a variety of reasons. One, the cost of everything that they're buying
01:29is going up. Two is the amount of stuff they need to buy is also going up, and they are
01:35trying to front load as much as they can. Three, they're also making investments in others
01:38like OpenAI and Anthropic, and they're feeding the ecosystem similar to what NVIDIA is doing.
01:45So I don't think we should be surprised by these numbers, and I just think they're going
01:48to keep getting bigger and bigger.
01:50You know, bondholders and Amazon bondholders happy to be one, right? I get that. Corporate
01:55credit is not my strongest suit. All I can do is look at what Andy Jassy said at the last
01:59earnings call. Capital expenditure growth outpaces revenue growth until such time that the thing
02:05you've actually deployed the capex on does something for you in return. You build a data
02:09center, and until it runs workloads, it doesn't generate revenue. They're trying to manage
02:14that. Yeah. You think they're doing a good job?
02:16I actually think they are. I think investors need to be patient. It's historically not a
02:21patient market, whether bond market or stock market. But the amount of spending that you're
02:26going to see over the next couple of years is going to far exceed the amount of cash that's
02:30coming in. So people are going to constantly question whether or not there's ever going to
02:33be a return. And quite frankly, even if you see very, very strong cloud numbers, or if
02:38you see some AI monetization, it's still on a relative scale. It's not going to be anywhere
02:42close to what their capital spending is. So what has to happen? I think bond market has
02:48to hold up, right? Yields can't go through the roof. They need to have access to cheap,
02:53low-cost capital. They do, and they're taking down as much of that as they can. They need
02:57to show that they're monetizing and continuing to show really strong double-digit growth across
03:03their AI and cloud businesses. And then three, they need to continue to convince the rating
03:08agencies that none of this matters. So let me ask you this to end. We just have 15 seconds. Why
03:12is
03:12Amazon the creme de la creme of issuers? Well, because of all the debt that they've issued,
03:17leverage is still really low. It's well below this two and a half times target that the rating
03:22agencies have. So they have room to borrow a lot more, and they generate a ton of cash flow from
03:28their other core profitable businesses. And they can help finance long-term growth
03:32with short-term borrowing.
Comments