Latest / Black Box Theory Podcast / Who's Actually Paying for the AI Boom?
Transcript
- Malcolm: So we're gonna talk about ⁓ like I said, so these five the five larger tech companies, Amazon, Google, Meta, Microsoft, and Oral, Oracle, they all plan to spend around ⁓ $660 to $690 billion in infrastructure on infrastructure in 2026. ⁓ the vast majority of that is directed at AI So we're talking about AI compute data centers networking. So all the fiber optic cabling that goes into the data centers that connects the GPUs To each other ⁓ and allows them to communicate, right? So that's up, that's near doubling their spending in a single year. Amazon alone is projecting $200 billion in CapEx, ⁓ up from $131 billion in CapEx. And for anyone that may be listening for the first time, ⁓ just gonna give like a quick like explanation of what CapEx means. So CapEx stands for capital expenditure. This refers to large upfront investments. So ⁓ like physical long term assets that benefit a business for more than one year compared to operating expenses, which people call opex, these are like the day to day recurring costs to keep the business, ⁓ to keep the businesses running, right? So it's like you can think of CapEx as like buying it a data center or software infrastructure, computer hardware, or vehicles, or building land and property. These are long term investments versus an operational expense exp ⁓ expenditure. So like ⁓ insurance or rent. or travel costs or a property tax or like I don't know like you know like that that's that's like a that's that's kinda like like the walk down like our office rent, employee salary, like stuff like that are our are operational expenditures, right? ⁓ so yeah. Regardless, from the explanation you know like everybody's spending more and more and more money. The revenue is going up too, but the CapEx is going way beyond any type of Wall Street estimate. So where's this money actually coming from? Thomas: Yeah. Malcolm: This cash is not actually on hand, just sitting around. Like I know I said that they have a lot more flexibility than other way smaller companies that don't have as much money. ⁓ but AI-related companies, they tap debt markets, right? For at least 200 billion the AR-related companies tap debt markets for at least 200 billion dollars in 2025. And Morgan Stanley, they're projecting 250 to 300 billion in hyperscalar debt issuance for 2026 alone, plus an additional 800 billion in private. credit for data center financing through twenty twenty eight. Not gonna lie, it's looking good, dude. So the new thing that we have here, we have these things called GPU backed loans. So that's is this is like a a con if you're familiar with Core Weave, which is like they literally just like lease hella GPUs and just like like sit on them. Core Weave, they secured the first eight point five billion dollar investment grade GPU back financing deal. So this means that the actual chips, the GPU chips, they serve as loan collateral. ⁓ similar to like if you think about a real estate property or an investment property. ⁓ How a property secures a real estate like loan, right? Like it's it's it's collateral. ⁓ so rating agencies they accepted rapidly depreciating GPU collateral and move AI infrastructure debt into a formal credit category for the first time. So JP Morgan, another leading financial institution, they project annual data center ⁓ securitization and issuance of a 30 to billion, $30 to $40 billion increase in 2026 and 2027. So AI debt. Is now a meaningful slice of the same structured c credit markets that blew up in two thousand eight. And in a more simple terms, it means like people are adding debt on debt on debt on debt and and and and and private credit, formal credit, all for the same bet that everybody's hoping, right? AI. And I'm not gonna lie, bro, I think people are starting to come to the realization, bruh, bruh, AI is cooked, bruh. Like it it's lucky not. Like w like bro, like yes, it helps us, bro. But I'm not gonna lie, if we're actually talking about genuine return on investment for the hundreds of billions of dollars that these guys are spending, are we really getting a return on our investment right now?