The Utilities Analyst Who Says the Data Center Demand Story Doesn't Add Up

Utilities analysts are having a moment as the energy sector gets a boost from AI. With an extra 94 gigawatts forecast to be needed by 2030 to power all these new data centers, energy investment has become a hot play as investors take a "picks and shovels" approach. But one long-time analyst says that — from a utilities perspective — we're already set to overbuild capacity by twice as much as is needed. On this episode, Andy DeVries, co-head of investment grade credit and head of utilities and power at CreditSights, talks to us about the math behind his infrastructure overbuild analysis, who has been making money (so far) from the data center boom, and what we already see playing out in the credit markets. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So, search Barclays Brief wherever you get your podcasts.

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• 1:11Speaker 01

  and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

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• 2:36Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 2:40Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:42Tracy Alloway?

  Joe, imagine you are a utilities analyst.

• 2:46Joe Weisenthal?

  Yeah, fun.

• 2:47Tracy Alloway?

  And for years, you are laboring in the utility analysis mines.

• 2:51Joe Weisenthal?

  Yeah.

• 2:51Tracy Alloway?

  And, you know, we like talking about utilities. We like talking about energy. We find pretty much anything interesting.

• 2:57Joe Weisenthal?

  That's right.

• 2:57Tracy Alloway?

  Equal opportunity interest people we are, but.

• 3:01Joe Weisenthal?

  Yes.

• 3:02Tracy Alloway?

  You've got to say utilities for a while, some people would say it was a little boring.

• 3:05Joe Weisenthal?

  Or quiet. No, that's right. I mean, for most of our careers, I think if you were a utilities analyst, a really big part of your job, and maybe I'm wrong, but I just in the popular discourse was like talking about yield relative to treasuries, right? They were seen as sort of bond-like instruments, et cetera, maybe a little bit of growth, but

• 3:26Tracy Alloway?

  Reliable, safe haven-ish dividend plays, I guess.

• 3:30Joe Weisenthal?

  Totally. And since I know where we're going with this conversation, one of the themes of the last few years has been what I would say is the old industries that were either stable or cyclical, becoming secular in the way they grow.

• 3:45Tracy Alloway?

  Mm hmm. I think that's right. So what is happening now is if you were, I don't want to say a lowly utilities analyst, but you know, maybe a sort of forgotten utilities analyst outside of your sector, suddenly you are very in demand, right? Because all you hear about nowadays is the AI build out and energy constraints on that. And so obviously a lot of people want to look at it from a utilities perspective.

• 4:09Joe Weisenthal?

  Totally. I always think like, what a great luck that some people have in their careers. You know, you can be an analyst and learn modeling skills and all kinds of stuff, and then you get allocated and someone gets allocated, I don't know, farm equipment, and another person gets allocated to, they wind up in utilities in 2022. It's like, man, they're on TV all the time. My old boss at Business Insider, Henry Blodgett, it's like, he was there as an internet analyst in like, the late 90s. What amazing timing and luck. And so.

• 4:39Tracy Alloway?

  It's like journalism and the beat you're assigned, right?

• 4:41Joe Weisenthal?

  It's the exact same thing.

• 4:42Tracy Alloway?

  I started out covering airlines, of all things, but those were interesting. Anyway, I'm glad to say we do in fact have the perfect guest. So we're going to be speaking to a utilities analyst, someone who happens to have a very contrarian take on the data center build out and how much energy is actually required. We've been hearing a lot from people who are very, very bullish on the data center build out. So this will be a useful counterpoint.

• 5:07Joe Weisenthal?

  I love it.

• 5:08Tracy Alloway?

  Okay, so without further ado, Andy DeVries, Head of Investment Grade Credit and Head of Utilities Empower over at Credit Suisse. Thank you so much for coming on All Thoughts.

• 5:17Speaker 05

  Thank you. The pleasure's mine.

• 5:19Tracy Alloway?

  So is it great to be a utilities analyst right now? Even better?

• 5:22Speaker 05

  Well, your Bloomberg News reporter, Josh Saul, wrote an article about the how much it's changed for be a utilities analyst now that data centers are here. But to push back, we did have the largest bankruptcy of all time in Enron.

• 5:33Joe Weisenthal?

  Oh, yeah.

• 5:34Speaker 05

  The largest LBO of all time in TXU, which then went bankrupt. And the largest private equity return ever in Calpine, 25 billion, which exceeds Apollo's Lyondell trade and Blackstone's Hilton trade. So we have had a lot of fun along the way.

• 5:47Tracy Alloway?

  Have you been a utilities analyst throughout that entire timeline? How long have you been doing it?

• 5:52Speaker 05

  I started with the first PacGas bankruptcy and then went through the second. And here we are with data centers. 25 years.

• 5:58Joe Weisenthal?

  Wow. So you really have seen it all. It is fair to say, so you're absolutely right. There have been some disasters and home runs and utilities, you know, they do get central in the news, obviously with the fires that we saw, for example, in California several years ago, and the court trials about allocation of risk in those situations. You mentioned Enron, et cetera. But it is also fair to say that much of the discourse in day to day has been like, these are sort of bond-like instruments.

• 6:30Speaker 05

  Absolutely.

• 6:31Joe Weisenthal?

  Before we get into that, just like, sort of like, talk to us about what a normal day is like and when you're thinking about utility before, you know. Yeah, pre data centers, five years ago, whatever.

• 6:41Speaker 05

  Pre data centers, you're looking at a lot of rate cases. You're studying a lot of local news, you're looking at legislation, you're reading, you know, dry regulatory documents. And then you're tracking natural gas prices because that's setting the price of power. And then on the federal level, you obviously have the renewables displacing coal. And that's, you know, obviously having a big impact now. So it's, I actually think it's a lot of fun.

• 7:01Tracy Alloway?

  My impression was always the policy aspect of it seemed kind of the most important thing to keep track of. Is that right?

• 7:09Speaker 05

  Absolutely. And that's down to the state level, but also the federal as well.

• 7:12Tracy Alloway?

  Yeah, we've done a few energy episodes, still trying to wrap my head around the sort of patchwork of rules that seem to cover our energy infrastructure. But anyway.

• 7:21Joe Weisenthal?

  There's something a little aspy about the way like you talk to people in the space and you're like, well, how does this get priced? And they're like, well, are you talking about market or essential? It's like, okay, I don't, I don't know, you know, it's like, are you talking about a rate board? Are you talking about market prices?

• 7:35Tracy Alloway?

  It's so hard, especially in a 40 minute podcast to try to generalize that.

• 7:40Joe Weisenthal?

  But I love the people, don't get me wrong, those are my favorite people.

• 7:43Tracy Alloway?

  Anyway, Andy, what is the mood like at the moment among utilities? People, analysts, investors? Wasn't there a conference recently?

• 7:51Speaker 05

  Everyone's gung ho on this. So the biggest conference of the year is EEI in November. And it was packed, it was standing room bowling for some of these presentations.

• 8:02Tracy Alloway?

  Wow.

• 8:02Speaker 05

  Your competitors at CNBC were broadcasting from the floor.

• 8:05Tracy Alloway?

  Is that the first time that happened?

• 8:07Speaker 05

  Probably a sign of a top. So yeah, people are very happy. And just to quantify it, utilities have generally grown around four, five, six percent a year. And then that's moved to five to seven percent a year. And now certain names, which we'll talk about later, are up to eight percent a year. And that's driven by data center growth.

• 8:23Joe Weisenthal?

  Talk to us a little bit more about that. So what is the, I mean, I'm like looking at a chart of the XLU ETF. I don't think it's like done insane, but talk to us a little bit about like. Maybe quantify the exuberance for us. So it's like, okay, we are no longer just in the business of measuring bond proxies and looking at policies, et cetera. There is a secular growth driver. Talk to us about like the bull case and then also how we would see the bull case, sort of like how it's manifesting into tradable instruments.

• 8:57Speaker 05

  Sure. And you pulled up the graph of the XLU. Obviously, it's still a very interest rate sensitive sector.

• 9:02Joe Weisenthal?

  Yeah, that's right.

• 9:02Speaker 05

  Because people are paying dividends. You can find higher yields and other fixed income instruments.

• 9:05Joe Weisenthal?

  Yeah, right.

• 9:06Speaker 05

  So, you know, maybe it didn't do so well last year. But the industry argues that as this EPS growth rate goes up to the high single digits, mid to high single digits, that it shouldn't be as interest rate sensitive. So that's the big debate going on with investors right now.

• 9:20Joe Weisenthal?

  And the stock, I mean, the XLU has done well. It's gone up.

• 9:23Tracy Alloway?

  If you zoom out, it looks pretty good.

• 9:25Joe Weisenthal?

  It's done well.

• 9:25Tracy Alloway?

  That's my impression of a Bitcoin investor, by the way. Zoom out.

• 9:28Joe Weisenthal?

  Just zoom out.

• 9:29Speaker 05

  Well, right.

• 9:29Joe Weisenthal?

  And you've gotten that coupon, right?

• 9:32Speaker 05

  Sure.

• 9:32Joe Weisenthal?

  So like you get, so like you might in normal times just be happy with a coupon. You're getting coupon plus.

• 9:37Speaker 05

  I mean, it worked out. The Fed went zero interest rates for so long. So utilities are the place to be. That's just math. And then as soon as the Fed starts jacking up rates, ChatGPT comes on the scene and all of a sudden there's data centers. So now all of a sudden you're taking the leg up on growth when you don't need to be so interest rate sensitive.

• 9:52Tracy Alloway?

  Interesting. So one of the reasons we wanted to talk to you is because you have that contrarian take on the data center build out. And we wrote it up in the Odd Lots newsletter, which everyone should subscribe to. It got a lot of attention. Your analysis, interestingly, is just based on some pretty simple math. So why don't you, just to start out with, why don't you walk us through the calculations that you're actually making to try to analyze how much capacity the utilities are taking on to actually power data centers?

• 10:26Speaker 05

  Sure. So as you said, it's pretty simple math here. So utility, so data centers now are consuming around 45 gigawatts of power. And you can switch between capacity and throughput. I'm going to stick with capacity.

• 10:37Joe Weisenthal?

  Okay.

• 10:37Speaker 05

  So 45 gigawatts of power. And then there's lots and lots of third party estimates for where they're going to be in 2030. And they center around this, you know, 90, 95 gigawatts. So you need to add 50. For 2035, there's a lot fewer estimates. You come around 160. Now, these estimates, they, you know, they're all over the place. They come from sell side banks, they come from consultants, they come from everyone. BNEF has one. They're, I think, one of the best out there. So.

• 11:04Joe Weisenthal?

  Thank you.

• 11:07Speaker 05

  We use them a lot. So that's on the demand side of where you're going to come out on these. And then you look at the supply, and everyone talks about the demand, right?

• 11:15Joe Weisenthal?

  Oh, yeah.

• 11:15Speaker 05

  But then you look at the supply, and all these tech bros are too cool to actually look at the supply and do utility analysis, right? Who wants to be a utility analyst? You were making fun of us before.

• 11:25Joe Weisenthal?

  We were making fun.

• 11:26Speaker 05

  But if you look at this...

• 11:27Joe Weisenthal?

  We're pitying you. But we realized our pity was misplaced, but we were not making fun. Anyway, keep going.

• 11:32Speaker 05

  So you look at the supply, and these utilities are tracking all these data centers connecting to the grid, because they've got to do a lot of work, spend a lot of money in transmission, distribution, new substations, transformers. It's a lot of work, but it boosts their earnings growth. So they're happy to talk about this. And so you look at where they're at, and where they're... They see things coming, and they've got around 140 gigawatts of near-term supply. Now, kudos to the utilities. They break out what's firm, committed, signed, contracted versus pipeline behind it. Because there's a lot of double, triple, quadruple counting. So if you're going to build a data center in the southeast, you're going to tell Duke, you're going to tell Southern, you're going to tell Dominion, you're going to build one. So that's the pipeline potential. But looking just at the firm, committed, whatever they

• 12:13Speaker 05

  want to call it, around 140 gigawatts. Now, that's... You've got to PUE adjust that. So when you connect a data center...

• 12:19Joe Weisenthal?

  What's PUE?

• 12:20Speaker 05

  Yeah. When you connect a data center to the grid, you've got lights, you've got cooling. Those third-party estimates I gave you are just for raw compute.

• 12:28Tracy Alloway?

  Why did you split those out, though? Because I mean, all data centers are going to need to be cooled down, right? What's the point of splitting it out?

• 12:34Speaker 05

  I'm not splitting it out. I'm just adjusting it downward, because the third-party estimates are just compute. So if you're connecting to the grid, you're going to ask for the lights, the cooling, and everything.

• 12:42Tracy Alloway?

  Yeah.

• 12:42Speaker 05

  So I want to go apples-to-apples versus the third-party.

• 12:45Joe Weisenthal?

  So what does PUE stand for?

• 12:47Speaker 05

  Power usage effectiveness.

• 12:48Joe Weisenthal?

  Great.

• 12:48Speaker 05

  Power usage efficiency. So they're at 140, so that PUE is down to 110 on apples-to-apples. So just to go back, you only need 50 on the demand side between now and 2030, and the utilities are working at connecting 110. So the utilities are working on already connecting almost as much as you need by 2035. So again, just to make sure on the same page, third-party estimates, 45 gigawatts for data centers now going to 95s, that's 50. Utilities are working on 110. They don't give timing for that. Some of it's going to be past 2030. What I'm trying to say is there is a lot of supply of data centers coming, and it's very unclear if there's going to be demand for this.

• 13:31Speaker 05

  So that's the issue there. And then it might be worth pausing that and just saying how we're tracking these things.

• 13:36Joe Weisenthal?

  Yeah.

• 13:37Speaker 05

  So what we do for the demand side is we use the original AI agent. You know what that is? A Gmail alert. They're the best. So anything that's not in our trade pubs, not on Bloomberg News, we get picked up by a Gmail alert. And so then we get all that in a spreadsheet. So that's on the demand side. And then on the supply side, we use Diego, and that's not a large language model. That's my junior sitting several blocks west of us right now. So he tracks all this on utility calls. Just yesterday, NextEra moved another 2 gigawatts from the potential into the committed. And these utilities are chomping at the bit to sign more and more of these deals. And I think it's just going to be oversupply. We're going to overbuild these things.

• 14:16Tracy Alloway?

  Just to be clear, the firm commitments, those are signed agreements to actually build this capacity?

• 14:24Speaker 05

  Yes.

• 14:24Tracy Alloway?

  Okay.

• 14:24Speaker 05

  And so I was talking with the CFO of Encore, and they made these comments on their call as well. They're owned by Sempra. And I said, you know, no one really believes these demand estimates. Texas is a walled-off market, as you guys know, 87 gigawatt peak market.

• 14:37Joe Weisenthal?

  That is the one thing I know about energy. Texas is its own walled-off market.

• 14:41Speaker 05

  There you go. So 87 gigawatt peak market. And the demand estimates are they're going to add 30 gigawatts by 2030. And I said to the CFO of Encore, I said, there's just no way. And he said, it might not be 30, but it's going to be closer to 30 than it is 0. And I said, I just, the forward power curves don't reflect that at all. And he said, then they're mispriced. So just for the benefit...

• 15:01Tracy Alloway?

  The entire market is wrong.

• 15:02Speaker 05

  Just for the benefit of your users, you cannot trade forward power in Texas on interactive brokers. I know that half your audience...

• 15:09Joe Weisenthal?

  That's too bad. Everyone's like looking up then. No, but this is great, and this gives us a bunch of technical questions to get into.

• 15:30Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee. So search Barclays Brief wherever you get your podcasts.

• 15:56Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices,

• 16:39Speaker 01

  but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 17:19Joe Weisenthal?

  Let's just keep talking about Texas. Explain to us kind of what the forward power curves are and how you can back out the implicit assumptions that traders are making based on those forward power curves about how much demand there's going to be.

• 17:38Speaker 05

  Sure. So, I mean, obviously, if you're going to go from 87 and you're going to add 15 or 30, whatever it is, you'd expect that curve to go higher.

• 17:44Joe Weisenthal?

  What's the curve measuring? Okay, you say there's a forward power.

• 17:48Speaker 05

  So the forward power curve is around the clock, peak or off-peak. There's three separate curves. And the difference between peak and off-peak is actually, you know, narrowed because data centers run 24/7. So it depends on your North Texas or South Texas, and those are in the high 50s.

• 18:02Joe Weisenthal?

  But what would we be seeing in the curves for like, are, is there trading happening at the 2030 tenor?

• 18:09Speaker 05

  30 might not be so liquid, but 27 and 28 certainly are.

• 18:12Tracy Alloway?

  But there is in other energy markets. So if you look at nat gas, for instance, although gas traders are really weird about the futures curve in gas, which I don't really understand. But if you look at that, you point out that over the longer term, it's downward sloping, which suggests that there isn't going to be as much demand, or maybe there's going to be more supply out in the future.

• 18:33Speaker 05

  I love it. We're morphing into natural gas because that is the main driver of power prices, especially in Texas. And the forward curve for gas is much more liquid than it is for power. And the forward curve for gas is inverted. It goes from 370 to 360 by the end of the decade. So as my energy analyst, Charles Johnson, points out, the bigger driver there isn't data center demand. We're at 6 BCF a day there. A lot of people are at 10, 12, we can get into that. But LNG exports, we're exporting 18 BCF a day now. We're going to add another 12. Like, you'd think that curve would be at least upward sloping by 25 cents, 30 cents. By the way, you can trade that in your Interactive Brokers account. So that goes into is there going to be a glut of LNG, it starts getting outside of the expertise,

• 19:15Speaker 05

  but that's what we heard from a lot of clients last week when we went on the road all over New York City.

• 19:20Joe Weisenthal?

  This is very interesting. I actually want to ask another question about the pure power curve. But since we are on LNG and then we can get back to the power curve, just setting aside data centers, et cetera, intuitively, you would think that what is a growth business in the United States? LNG exports. And in fact, one of the sort of policy debates around the whole question of building out LNG terminals is it's going to make gas more expensive for American consumers because now we're going to be competing with European buyers. Whereas when we didn't have LNG export terminals, we were just swimming in it because it had nowhere to go.

• 19:56Speaker 05

  Nowhere to go.

• 19:56Joe Weisenthal?

  So it's very interesting to hear that even with everyone acknowledging a booming domestic demand and b the expansion of international demand, that downward sloping gas curve.

• 20:08Speaker 05

  Yes, maybe, I don't know, maybe they're reflecting world peace in Europe and Russia LNG is unacceptable to the rest of the world. That could be a driver.

• 20:17Joe Weisenthal?

  Then they would have to rebuild that pipeline.

• 20:18Speaker 05

  Yeah, but but back to our original conversation on demand. The reason I was talking to the Encore CFO and asking him about this is he said he's holding $2.5 billion of cash collateral postings from some of that demand. And he's like, you're not some, you know, Joe Schmo startup, I'm going to build a data center and connect to your grid. If you're posting $2.5 billion, and he says, and this is what he said in their earnings call as well. You know, that's real demand. That is coming. It's material.

• 20:44Joe Weisenthal?

  I'm sorry, just now to go back to the power curve, which I get is much less liquid out there, but there are trades that happen. These are price, like what, how do you infer volume from price? Because these are price curve.

• 20:58Speaker 05

  We don't get the volume, but it's a it's a yearly curve. And then right before the year starts, it splits into 12 month curves and then it goes into weekly before.

• 21:05Joe Weisenthal?

  What I'm saying is how do you infer what expected volume in 2028 is going from a price curve?

• 21:10Speaker 05

  Sure, it's it's flat. It goes up a dollar from here to 2030. Whereas if you're going to add 20% to your grid demand, then you'd expect it to go up several dollars.

• 21:19Joe Weisenthal?

  All right.

• 21:20Speaker 05

  To see forty cents, fifty cents.

• 21:22Joe Weisenthal?

  I see what you're saying. Okay.

• 21:23Speaker 05

  Something like that. And then just to go back to the fork of your upper fifties in Texas, low sixties for peak, and the data center companies are paying ninety five. So Vistra just did a deal off.

• 21:33Joe Weisenthal?

  Ninety five what?

• 21:34Speaker 05

  Dollars a megawatt hour.

• 21:35Joe Weisenthal?

  Okay.

• 21:35Speaker 05

  For around the clock. So Vistra contracted out its Comanche Peak plant in Texas, ninety five dollars a megawatt hour. So big tech is paying a very pretty penny. You can argue some of that's for the CO2 free aspect of it, and some of it's just to lock in the supply.

• 21:49Tracy Alloway?

  So just to go back to the math and your overall argument, I mean, you're basically saying that utilities are already committed to building out, I guess, twice as much capacity as is forecast to be needed by twenty thirty.

• 22:02Speaker 05

  Yes.

• 22:03Tracy Alloway?

  The wild card to me seems to be the demand forecast, right? And we're already seeing those change pretty wildly. I know you mentioned Bloomberg NEF, but you know, they've they've raised their forecast because of the data center build out. So they've raised their forecast of how much energy is actually needed. How much confidence do you have in those demand numbers? And how could they change over time?

• 22:28Speaker 05

  Moderate confidence, but like, look where we're at now, like, OpenAI built all of ChatGPT using two gigawatts. All the big tech hyperscalers, they haven't given their two thousand twenty five volumes yet, but if you take their two thousand twenty four volumes and then double it, and this is output, so I'm going to transfer it back to capacity and use some sixty percent capacity factor, all the hyperscalers combined around fifteen gigawatts, and that's got to be over half the data center demand. So to talk about ninety five gigawatts, I mean, it's a staggering number. And then you get more advances in, you know, Nvidia chip efficiency.

• 23:00Joe Weisenthal?

  Yeah.

• 23:00Speaker 05

  Obviously, Jevon's paradox kicks in. You've had numerous guests talk about that. It's just a lot of power, a lot of power.

• 23:07Tracy Alloway?

  Can you just remind us, one gigawatt is enough to power what? I like these comparisons.

• 23:12Speaker 05

  A million homes, but it depends if you're in Florida or the Northeast, but generally speaking, that's where you're at.

• 23:17Joe Weisenthal?

  Not only do I find electricity markets and so and market structure and electricity very difficult to wrap my head around, even after all of these conversations, I have built no heuristics or intuitions for what these a gigawatt, kilowatt, megawatt. Like you say these things, and I know gigawatts bigger than a kilowatt, like what this actually means. And then the fact that even there, we're talking about the difference between a gigawatt and a gigawatt hour and the like, I have yet to develop the sort of intuitions that I have.

• 23:46Speaker 05

  Haven't you seen Back to the Future?

• 23:48Joe Weisenthal?

  Yeah.

• 23:49Speaker 05

  1.1 gigawatts?

• 23:50Joe Weisenthal?

  Oh, there you go.

• 23:51Tracy Alloway?

  We gotta print out, you know, a little table.

• 23:53Joe Weisenthal?

  Yeah, I need a little cheat sheet.

• 23:54Tracy Alloway?

  Like, the way we used to do for credit ratings in the financial crisis. We need that up there. And actually, credit ratings are going to be interesting from a utilities' perspective as well.

• 24:02Joe Weisenthal?

  Can I just ask, you know, obviously, one of the sensitivities in general, with all things data center and utilities of this view, and I think it's kind of overstated, is the average rate payer going to end up paying for a lot of data centers? Or we'll raise our electricity bill? And I understand, like, these are complex questions and the math isn't so clear. And also, from what I understand, the emergence of a data center can actually lower the consumer's electricity bill because there's just that simple math, which is if there's more buyers splitting the cost of the build-out, then actually, your price tag can go down. But in the scenario you're laying out, in which there's a bunch of upfront capital investments and everyone's very excited to build it out,

• 24:44Joe Weisenthal?

  and that creates wires, and you have to buy transformers and gear and all this stuff. If the demand does not materialize as expected, that does sound like conditions in which we could see consumer rates go up.

• 24:57Speaker 05

  Absolutely. So that's what we're spending all our time on. And it's state by state. And even within the same state, you've got numerous jurisdictions. So is it legislatively mandated? Or is it done by a rate case? Or, in the case of Northern Indiana, have the companies themselves, data center companies themselves, gotten ahead of it and said, "We're going to put in a solution where ratepayers are absolutely protected and get money back." So you look at NiSource, which is a Midwestern utility. They own Northern Indiana Public Service, NIPSCO. And they've got a deal where they've got a inside rate base, they've got a separate GenCo. So they sold, and that GenCo is doing a deal with Amazon. And they're going to kick back $1 billion over 15 years to ratepayers. So rather than have a debate, "Oh, who's funding what?"

• 25:42Speaker 05

  It's like, done, and you get $67 million a year. And that's the blueprint, that's the gold standard.

• 25:49Joe Weisenthal?

  Yeah.

• 25:49Speaker 05

  Now, keep in mind, six months before that GenCo was launched, NiSource sold 20% of NIPSCO to Blackstone. So you could argue Blackstone said, "Hey, let's go ahead and do this." And then the utility right north of Indiana, or northeast of Indiana, is Ohio. And the CEO of FirstEnergy... Is an ex Blackstone guy. So maybe they look at doing a GenCo or something like that. That's pure speculation. I have no idea. PacGas, Pacific Gas Electric, they've done a deal where they've got rates in place that protects presidential ratepayers. Ameren has, but a lot of utilities don't. They don't have these protections.

• 26:20Joe Weisenthal?

  And the point is, someone, if it turns out that there's an overbuild and there is not as much demand for it, someone's paying for it. And either it's going to be the customers or perhaps utility shareholders.

• 26:29Speaker 05

  I mean, you just, the political risk of having mom and pop bail out, you know, Mark Zuckerberg, Jeff Bezos, is just, you can't have that happen. But again, six months ago, this was coming up on the tail end of conference calls. And now these utility CEOs are having in their prepared remarks. So I'm pretty confident they're going to figure it out.

• 26:47Tracy Alloway?

  You mentioned Blackstone just then. I do want to talk about who is currently making a lot of money from the data center build out. But just to stress test the thesis a little bit more, because it is a contrarian take. And so I think we should ask a bunch of questions about it. But does it take into account time lags for projects? So I think, you know, capacity build out in the energy sector is notoriously bureaucratic. That is one thing that Joe and I do actually know about the sector. Is it possible that a lot of these committed projects actually take much longer to get working on the ground than currently forecast?

• 27:24Speaker 05

  I think the delays will be on building the new generation, not the data centers. So a data center takes two, three years. Even if that slips to four, five years, the power plants take six, seven years. And as you know, you can't get a G-Vernova gas turbine for years and years, which is obviously a bullish backdrop here.

• 27:40Joe Weisenthal?

  Yeah. Talk to us more about that element of it all, because building out, if you overshoot on production, then that's a problem in itself. If you overshoot on production at a time when it's gotten really expensive, because there's massive inflation in the construction sector, that's an even greater problem. Talk to us just about, like, per any given unit of productive capacity on the utility side, how much more expensive has it gotten? And what are you forecasting for that?

• 28:08Speaker 05

  Sure. So to build a combined single gas plant 10 years ago is 1,000, 1,200 a KW to build. Then it got to 2,000. And utility analysts like myself was like, whoa, that's insane. Now we're up to 3,000. And it's like, who's actually spending this? But that $3,000 a KW for a new gas plant? Compares the data center itself, that cost $40,000. So for big tech to spend another three to lock in their gas prices or their fuel sources, like it's nothing.

• 28:35Joe Weisenthal?

  Oh, yeah.

• 28:36Speaker 05

  It's de minimis, which goes back to the output. Forward power is 55, 60, and big tech's paying 95. In the grand scheme of things, so the cost of the data center, it's nothing. So that's why our utility analysts are just jaw dropping on how shocking it is big tech's willing to pay these amounts.

• 28:51Joe Weisenthal?

  What about if you don't measure production of new plants in dollars, but new plants in time? And again, if you're talking about, okay, well, if we can't get this turbine that is several years ago, we could have got delivered next month, how much longer are these projects taken?

• 29:07Speaker 05

  So if you can figure this out, I think you're alluding to this, if you figure this out, you can make a lot of money.

• 29:11Joe Weisenthal?

  Okay.

• 29:12Speaker 05

  Because obviously Inflation Reduction Act had enormous.

• 29:14Joe Weisenthal?

  I'm going to vibe code a thing to figure it out. Keep going.

• 29:17Speaker 05

  And Inflation Reduction Act, enormous tax credits for renewables.

• 29:21Joe Weisenthal?

  Yeah.

• 29:22Speaker 05

  And then the one big beautiful bill, obviously clip those if you're not aligned by a certain date. So all this data center numbers are weighted towards the end of the decade, whereas the new solar is right here, right now, crushing power prices. So you actually want to be a little short power for the next few years and then flip to being long. And if you can figure out when that flip is, you can make a lot of money in either the forward power curves or the natural gas curves. But as far as your original question, as I said, data centers, two, three years to build new power plants for five. But then you don't need as many new power plants as everyone's saying. So Constellation CEO said on a call the other day, he said, he was the Texas market. He said 87 gigawatt peak market, you could add 10 gigawatts to Texas tomorrow, which

• 30:06Speaker 05

  would be the equivalent of sending every single Nvidia chip for an entire year to Texas and running them 24/7. That's 10 gigawatts. He goes, you could run it right now, existing grid, existing plants for all but 40, 50 hours a year. We stress tested it. There are some coal plants that can ramp up capacity factor. There's plenty of gas plants that can. So I don't know if it's 40 hours, 100 hours, 150 hours. But it makes more sense to pay someone else not to run their chemical company, their refinery company for 40, 50 hours a year, rather than have the utilities go out and spend $10 billion connecting faraway wind farms. That's the argument. We're sort of come in the middle of it, but there is plenty of existing capacity on the grid that could ramp up to meet it.

• 30:48Speaker 05

  And then of others, guests have pointed out on Odd Lots, you know, the peak demand of the grid is 850 gigawatts. The overall size of the grids are 1,200 gigawatts. And then you're adding 50 gigawatts a year of solar, and then you're going to start adding 20 gigawatts of gas. I mean, we're going to handle it. I'm not really worried about any brownouts or anything.

• 31:08Tracy Alloway?

  Oh, yeah. Talk to us about regional transmission, because this is something that we hear a lot. It's not necessarily the power generation that's an issue here. It's the transmission, which the US, you know, seems to struggle with, to put it mildly.

• 31:21Speaker 05

  So there's regional markets, MISO, Midwest, the Mid-Continent ISO. These guys are tired the most amount of coal, so I think they're going to be in the worst shape. And then Texas, and then it depends if anyone builds anything in New England. New England's got the faraway, most expensive power prices, $70. The rest of the country's, you know.

• 31:40Tracy Alloway?

  I am well aware.

• 31:41Speaker 05

  Yes. I have too, because I live in Connecticut. So if anyone builds a data center in New England, they're going to be the tightest. But after that, it's really MISO.

• 31:49Joe Weisenthal?

  No one's building data centers in Vermont, where they occasionally have to switch over to oil and wood, right?

• 31:54Speaker 05

  I mean, the ISO New England app, which we all have on our phone, right? They were getting 40% of their power from oil.

• 32:01Joe Weisenthal?

  Yeah, yeah.

• 32:02Speaker 05

  In the cold snap the other day. It's tough to talk about New England power without talking politics, and we're not going to go down that path.

• 32:07Joe Weisenthal?

  Yeah, I know.

• 32:08Speaker 05

  So, so anyway, transmission is very important, because you've got to connect all these faraway renewables to the grid.

• 32:13Joe Weisenthal?

  You said something that I think is actually kind of important. There is this narrative meme, you know, people talk about the AI race, US versus China. And that one of the things I've seen people say, China is going to win because they could just build out power more easily than we can. It sounds like, I know you're not an AI analyst, but it sounds like from your perspective, we don't know like what it means or who's going to win US versus China, but then from your perspective, power is not going to be the decider here.

• 32:43Speaker 05

  Not in China, it's not.

• 32:44Joe Weisenthal?

  But it doesn't, you said like, you know, that we could ship every current with existing capacity, we could put every Nvidia chip in Texas today and we could run them.

• 32:53Speaker 05

  For 50 hours.

• 32:54Joe Weisenthal?

  For, with the exception of a few really hot hours in the summer, I assume.

• 32:58Tracy Alloway?

  I like the imagery of all the Nvidia chips going on a field trip to Texas.

• 33:02Joe Weisenthal?

  But it sounds like to your view, that really isn't going to be, from the US perspective, that won't be the binding constraint.

• 33:09Speaker 05

  It's, it's gonna be a little tight, but I'm not one of these doomsayers, oh, it's the absolute gating factor, it's all gonna stop. I was in Shenzhen, China, last year, and a robot got in the one floor and the elevator went up and it got off another one and I was like, what is going on here?

• 33:40Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 34:22Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at chatgpt.com.

• 35:03Tracy Alloway?

  There's another reason we wanted to talk to you aside from your capacity analysis, which is one of the interesting things that's been happening in the credit market is obviously private credit has been a big story for the past few years, but now private credit is getting in on the data center build out as well. They're sort of, I guess, getting on your turf a little bit in the public bond market, but what sort of activity have you seen there?

• 35:31Speaker 05

  Sure. So we think that's where the risk is gonna, is gonna happen. And frankly, Bloomberg News broke the story on PIMCO made $2 billion on day one loaning to the Meta Data Center in Louisiana. So they priced $25 billion debt at 220 over treasuries and then immediately started trading at 140 and handed PIMCO $2 billion. Great for PIMCO, but then

• 35:52Tracy Alloway?

  everyone else- It's nice to be PIMCO, isn't it?

• 35:54Speaker 05

  It's nice to be PIMCO, especially the weather in Newport Beach. But everyone else in private credit is like, oh, these guys just made $2 billion. We need to start lending to data centers. And we all know how this ends. Covenants start falling, rates start falling. And again, if you're big tech, who cares if you overspend? Like you think AI is the be all, end all, you're gonna overspend. It's when you get down to the second tier, the QTSs, the Vantages of the world, and then you get down to sort of the ones below that and you get like, you know, the Core Weaves and the Nebius's of the world. And, you know, there's a lot of shorts going out on Equinix and obviously your guest Jim Chanos is, and it's all about the chips. I'm not going to get into the chip debate. But it's interesting, you look at a Core Weave and they got a $50 billion market cap. That's a real company. You're gonna be

• 36:35Speaker 05

  around for a long time. But the bond market's saying, we want a 10% yield to loan you 2030 paper. You might not be a real company. And if you look at our supply demand outlooks, we're kind of in the camp of the bond market. But timing, which you mentioned earlier, Joe, is so key because the data centers, you're gonna ramp for a couple of years and the oversupply is really a 2030 event. So good luck timing that one.

• 36:57Joe Weisenthal?

  You said something, you talked about that PIMCO meta deal. And this question has come up, and I still don't think- Got a totally satisfactory answer to it. Meta is a very highly rated company. As you see it as a credit analyst, what is it about the private credit? You know, they're talking about, oh, it's flexible, et cetera. But your 220 spread over treasuries is not nothing at all. And is that 220 spread really like worth it for like a little bit more flexibility, et cetera? Like, what are they paying for exactly in the private credit market that they couldn't get cheaper? I would think in the public bond market.

• 37:34Speaker 05

  I don't know, but I could speculate. There's a couple of reasons. The meta question is, why did you put this off balance sheet?

• 37:40Joe Weisenthal?

  Yeah, all right.

• 37:41Speaker 05

  So you've got this state of the art data center with the best Nvidia chips out there. And you're a tech company and AI is the be all, end all for everything. Did you kick it off your balance sheet because you didn't want to damage your balance sheet? But the agencies are imputing it, but maybe quant funds running their screens, they don't impute that. So maybe that helps. Or maybe you didn't want the depreciation running through your income statement. Maybe that helps. Or maybe you want to walk from this thing in five years. I don't know. But one of those is definitely the reasons because why else would you pay that much bigger spread? 150 bips over their borrowing costs.

• 38:14Joe Weisenthal?

  But so the key thing is here, when you talk about that PIMCO Meta deal, technically this is not Meta debt.

• 38:21Speaker 05

  It is not. It's off their balance sheet.

• 38:23Joe Weisenthal?

  Okay, so they create a vehicle. They're not gonna, okay, that's a, I think that's an important element that they're not just arbitrarily paying a lot more for like a sort of.

• 38:33Speaker 05

  No. It's off balance sheet. And if you read the credit docs, they've guaranteed this debt.

• 38:38Joe Weisenthal?

  Yeah.

• 38:39Speaker 05

  Even if the data center shuts down, but our understanding of the docs is if they sell it, then the guarantee goes away. And so that would create a little risk. But back to my utility roots.

• 38:48Joe Weisenthal?

  Please.

• 38:49Speaker 05

  What happens if a data center shuts down for ratepayers? And they actually have an explicit guarantee from Meta to protect ratepayers. So they have that. A lot of other utilities don't. So a lot of states, Louisiana, Mississippi, Tennessee, Texas, they need to do better job protecting their ratepayers. And by the way, that's just one line in the doc that could fall away in other new data centers. And that's what we spend our time looking at.

• 39:12Tracy Alloway?

  You mentioned the credit ratings just then. So the rating agencies, they, they look at the off balance sheet vehicles, even though it's not officially part of the company's debt.

• 39:22Speaker 05

  They impute the lease payments.

• 39:23Tracy Alloway?

  Okay.

• 39:24Speaker 05

  And include that as debt.

• 39:26Joe Weisenthal?

  I see.

• 39:27Speaker 05

  And for Meta specifically, they won't do that until the lease starts when it comes online, but everyone's doing it.

• 39:33Tracy Alloway?

  And then I was just thinking, I don't mean to labor this analogy too much, but you know, you started out by talking about all the exciting moments in the history of being a utilities analyst, and one of those was Enron, which I assume means, you know, you have some experience with circular deals. But what do you think about all the sort of incestuous financing deals that seem to be happening between all the various players in the data center industry?

• 40:00Joe Weisenthal?

  You mean, we'll buy your equity so you can buy our chips?

• 40:03Tracy Alloway?

  Yeah.

• 40:03Joe Weisenthal?

  Yeah.

• 40:04Speaker 05

  Again, I'm on the side of bondholders in that one. Just look at the market caps, look at the bond yields, and it's...

• 40:09Joe Weisenthal?

  Explain what you mean by that, for people who don't have a Bloomberg.

• 40:14Speaker 05

  CoreWeave goes out...

• 40:15Joe Weisenthal?

  People like me who have a Bloomberg but are too lazy.

• 40:17Speaker 05

  So these names are going out, and either OpenAI or Nvidia is going out and buying equity in these NeoCloud companies. So then they can go out and either supply the compute to OpenAI and buy the chips from Nvidia. So it's all very circular. And I think the example people used 20 years ago was Nortel was doing this, all the vendor financing. So there's a little bit of skepticism on that.

• 40:39Tracy Alloway?

  Okay, so we can't do a utilities episode. I know we've been focused on data centers, but we can't do a utilities episode without mentioning nuclear power. What's it going to take to actually get, you know, some capacity from nuclear?

• 40:53Speaker 05

  Sure. So, obviously, the Vogel plant was the last big nuclear plant that came online. It was supposed to cost 14 billion, it ended up costing 32 billion, it came online 10 years late, no utility wants to take that risk. Now everyone's talking about these small modular reactors, and I think that's what you're going to start seeing is more talk of these. The only way we think a small modular reactor goes final investment decision, FID, is if big tech agrees to do two things. They agree to buy some SMRs, and they invest equity in those SMR manufacturers to give them the capex to build them.

• 41:25Joe Weisenthal?

  Which sounds like something they would do, to be honest.

• 41:27Speaker 05

  For sure. And I think that's the only way you get one of these off the ground. And I think if those stocks rally on that deal, they're all shorts because they're already reflecting several of those deals happening. So the big ones are... Or Newscale and Oklo and Sam Altman of OpenAI used to be the chairman of Oklo and then he stepped down so they could do a deal. So something along those lines would happen. That being said, Donald Trump has talked about doing work with Westinghouse and taking equity ownership to build another AP 1000. And obviously President Trump is all about taking equity, but none of the utilities in my coverage are going to build something without some sort of backstop there.

• 42:03Joe Weisenthal?

  We did an episode recently with an infrastructure investor and I, you know, I'm a journalist, I look at the past, I don't talk about the future. But I was put on the spot and I said, I think in the next 20 years, gun to my head, we will never have another Vogel. We're not going to have another project like that in America. And it sounds like you agree.

• 42:24Speaker 05

  I agree. I do think you see some SMRs.

• 42:26Joe Weisenthal?

  Okay.

• 42:27Speaker 05

  I mean, frankly, our country's been making nuclear submarines for 67 years. That's an SMR right there. So I think that's the way it happens is big tech goes in and does that for sure.

• 42:36Tracy Alloway?

  In 20 years, we'll have you back on to see whether or not, well, both of you

• 42:40Joe Weisenthal?

  This is my only, I have no nothing about the future. This is my only one call is I just don't think we're gonna ever get that. Right, that's, we're not gonna get a bunch of those things.

• 42:48Speaker 05

  I'm with you on that. And in 20 years, hopefully I can dial in from the beach.

• 42:52Tracy Alloway?

  All right. See you in 20 years then. No, probably before because this was a fantastic conversation. Thank you so much for coming on All Boats.

• 42:59Speaker 05

  Thanks for having me.

• 43:12Tracy Alloway?

  Joe, that was a really fun conversation.

• 43:14Joe Weisenthal?

  That's super fun. I love that.

• 43:15Tracy Alloway?

  My, the opinion or framing that I'm sort of coalescing around is that AI can be simultaneously underhyped and overvalued, right? And actually, throughout history, that's kind of what we've seen with transformative technology, right? Like, think about the internet bubble. The internet changed the world, but it was a bubble. Think about railroads. Railroads in the 1800s changed the world, but also a bubble. So I think that's kind of, that's kind of what I think. The key issue which Andy and you both touched on is the timing, right?

• 43:49Joe Weisenthal?

  The timing and yeah, I mean, I think it's so it's very interesting because of course his argument doesn't even, you know, doesn't even rest on any valuations right now. It's like there is all of this expectation for build out. There is, you know, as he put it, there is a number for the amount of the volume of data center demand. There is an amount that's being built up and he's like, the second number looks bigger and that's going to be a, that's going to be a problem.

• 44:18Tracy Alloway?

  Yeah.

• 44:18Joe Weisenthal?

  And the time, to your point, like it, I thought, you know, really interesting observation he had is a little bit not tangential to his core idea, but this idea that some of our energy policies are encouraging a lot of production right now, particularly the expiring solar credits.

• 44:34Tracy Alloway?

  Yeah.

• 44:34Joe Weisenthal?

  At the same time, a lot of this demand is going to come online in the backend, et cetera. Um, I do think, you know, it seems like a really, it definitely seems like a fun space. It's very far from when we were just talking about like utilities as, as rate proxies.

• 44:50Tracy Alloway?

  Right.

• 44:50Joe Weisenthal?

  Something for old people to get, uh, income.

• 44:53Tracy Alloway?

  Well, the other thing I was thinking about on the demand side is I think there's a tendency among AI bulls, vibe coders such as yourself.

• 45:02Joe Weisenthal?

  That's right.

• 45:02Tracy Alloway?

  To think that demand is just going to go one way, right? So there's going to be more demand for AI because I don't know, every piece of software is going to be replicated through Claude code or whatever. And so power demand is going to go up as well. But what we've seen so far is that these things are getting more and more efficient.

• 45:23Joe Weisenthal?

  They're definitely getting more and more efficient.

• 45:25Tracy Alloway?

  And like faster than anyone expected.

• 45:28Joe Weisenthal?

  Yeah, you know, this is a little bit tangential to the point, but I do think like one of the recurring phenomena that we're seeing across this, uh, industry is that every, I mean, and this is.

• 45:42Joe Weisenthal?

  I guess it's a bull case, which is that, you know, even the optimists keep getting, uh, turned out to be too pessimistic. The pace of, say, like, efficiency gains for the cost of processing a token, dropping faster than people expected. This morning, we're recording this January 28th. ASML, the big chip, uh, equipment company, way better than expected. The evals, the benchmarks for the models where it's like the optimists say, like, maybe it could code at this level by 2027. Turns out it hits there by like, you know, early 2026, et cetera. So like, if you want to just make, I'm not making any case here, but if you just want to like make a bull case, it's like, even the optimists, um, keep getting surprised to the upside.

• 46:25Joe Weisenthal?

  On the other hand, it's fascinating to hear him say, look at what the markets are saying. They're not pricing in any of these expectations. And I was particularly surprised because I didn't realize this, that even like, you know, for all of the talk of LNG export terminals, et cetera, that gas is expected to be cheaper a few years from now than it is right now. Uh, very interesting dissonance, uh, between that and the popular narrative.

• 46:51Tracy Alloway?

  Maybe, uh, gas traders just aren't vibe coders yet.

• 46:53Joe Weisenthal?

  Then they would understand exactly how much more of this, uh,

• 46:58Tracy Alloway?

  But just from an energy perspective, though, there is a push and pull factor here, right? So on the one hand, everyone could use AI and demand goes up. But on the other hand, maybe it gets super, super efficient and then demand goes down. I think that's, that's the difficulty.

• 47:12Joe Weisenthal?

  Or it's just, there is a number that's out there. It's like sort of like some reasonable inferences about where it's going to go. And it's very high. And it was actually very striking listening to him talk about some of those supers, uh, the hyperscaler numbers. Cause it's like, where is it at up, right? Like, as he pointed out, okay, chat GPT like came out in two gigawatts, et cetera. Like, there aren't a ton of chat GPTs out there, right? And that's one of the most computationally intensive things. Like, maybe there are reasons to think this is all going to go great. There's going to be a ton of money made in AI, but you can't really just like get to the number. I don't know. I think he um it was a this was a very useful perspective, just sort of on some of the simple math.

• 47:57Joe Weisenthal?

  And the math sounds like it's subtraction, like this sounds like what my son is learning about right now.

• 48:01Tracy Alloway?

  Well, the other thing I thought was really interesting was the response to your question about why would you finance these things off balance sheet if you're, you know, this massive cash-rich technology giant and the suggestion there was, well, maybe at some point in the future, like five years down the line, you need to get rid of this liability. You don't want to deal with it.

• 48:23Joe Weisenthal?

  This is why we did that episode with the guy who has, you know, the company doing the legal docs, right, etc. This is why it's pretty crucial to understand some of these things because some of the questions sound like Facebook's or Meta's option to walk away, right? There's some call option implicitly to walk away, etc. And they uh they how they what they could do, what scenarios and what they would allow to be do is obviously going to be pretty crucial for any investors in this off-balance-sheet paper. I did not know until you asked this whole idea that um the ratings agencies, while they don't look at his debt, they do back out a lease cost

• 49:05Joe Weisenthal?

  and therefore it can inform their overall credit sustainability.

• 49:09Tracy Alloway?

  Well, the other thing, you know, we touched on this, but there's more and more demand from investors for data center debt, right? Like the space is getting more, for some reason, the space is getting more competitive. And so naturally, what you see in any other credit cycle throughout history is as demand grows and people are competing for deals, the documentation and the protections tend to diminish.

• 49:33Joe Weisenthal?

  You know, I find the existence of hype cycles for debt to be a little bit weird because I get like, oh, I really want to get into AI equity, right? Because that could 100x next year, right? And it's like, oh, I'm really excited about getting into data center debt because it might pay me 50 bips more. I find to be very strange, or 100 bips more. It's like, if I have a fixed, look, I'm a simple, a simple guy, but if I have a fixed income allocation, all I care about is minimizing downside. And I don't really care like what sector it is. I'm not participating in the upside.

• 50:06Tracy Alloway?

  You're not going to get greedy?

• 50:07Joe Weisenthal?

  You're not going to get rich. You're going to get super rich on like, I just don't want to lose my, like for fixed income, I just don't want to lose my money.

• 50:14Tracy Alloway?

  Fair enough. All right. Shall we leave it there?

• 50:16Joe Weisenthal?

  Let's leave it there.

• 50:17Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 50:22Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot, and Kail Brooks at Kail Brooks. And for more Odd Lots content, go to Bloomberg.com/oddlots for the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 50:44Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about the data center build out, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 51:36Speaker 06

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• 52:43Speaker 02

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