How Big Tech’s Debt Machine Is Powering the AI Boom

Ed Elson is joined by Joe Feldman, Senior Managing Director at the Telsey Group, to unpack Home Depot’s earnings and what they reveal about the state of the American economy. Then Robert Schiffman, Senior Technology and Internet Credit Analyst at Bloomberg Intelligence, joins the show to break down why Amazon raised $15 billion in debt this week and explain how that strategy is shaping the AI boom. Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram and X Follow Scott on Instagram Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:29Ed Elson?

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• 1:59Ed Elson?

  Welcome to Profty Markets. I'm Ed Elson. It is November 19th. Let's check in on yesterday's market vitals.

• 2:06Ed Elson?

  The major indices all declined as the tech sell-off continued. The S&P 500 fell for the fourth day in a row to its lowest close in a month. Meanwhile, the yield on 10-year Treasury slid and finally Bitcoin dipped below $90,000 before recovering marginally.

• 2:23Ed Elson?

  Okay, what else is happening? Home Depot shares dropped after reporting third quarter earnings yesterday. Revenue slightly beat expectations, but the company missed on earnings per share. The retailer also cut its full year guidance. Earnings for 2025 are now expected to fall 5% instead of previous projections of 2%. The stock closed down 6% yesterday. So why do we care? Well, Home Depot can tell us kind of a lot about how the American consumer is doing. Its results are also closely tied to the housing market. And on top of that, the company is relatively exposed to the tariff. So to help us break down what these earnings tell us about the broader economy,

• 3:06Ed Elson?

  we are speaking with Joe Feldman, Senior Managing Director at Telsey Group. Joe, thanks for joining us.

• 3:12Speaker 09

  Yeah, thanks for having me. Excited to chat with you.

• 3:14Ed Elson?

  So we want to get your reactions to these earnings. Beat on revenue, missed on EPS, stock fell 6%. Take us through what happened with these Home Depot earnings.

• 3:26Speaker 09

  So I think what happened was expectations were a lot higher heading into the print. Really self-induced by Home Depot. If you go back a quarter, they saw some momentum in the business. They had a better spring, early spring, summer period. And they thought the second half of the year was going to be even better. They thought there would be continued momentum. So we in the street all expected higher sales trends coming into this quarter. And then when the quarter materialized, it didn't happen. You know, basically the consumer stayed kind of stable. So their underlying business stayed stable at around a 1% growth in terms of comp. But there was some pressure because of the lack of storm activity.

• 4:10Speaker 09

  Usually hurricanes are a good thing for Home Depot for lows. And when that didn't happen, it caused further pressure on sales. Then the margins start to deteriorate a little bit. And you saw some deleverage and so the earnings came in a little bit worse. And the investor community was a little frustrated with what happened.

• 4:28Ed Elson?

  Can you tell us more about how hurricanes relate to profits at Home Depot? It's a strange thing in the business, but it is important.

• 4:37Speaker 09

  Yeah, no, it's very important actually that in the third quarter and sometimes in the fourth quarter where big storms can have a big impact. Because When a hurricane comes and there is some destruction related to it, or tornadoes and other storms, you know, houses need repair. Roofs might get damaged, gutters might get damaged. And so when that happens, the consumer usually comes back in force in that region soon after the event to try to repair their homes. This time around, in the third quarter of 2025, we didn't really have any major storms like that compared to two last year, late in the quarter around October. And those storms had a big positive boost to Home Depot, Lowe's, Tractor Supply late

• 5:20Speaker 09

  in the quarter a year ago in their fourth quarter. So now, when you look ahead and you don't have any storm activity or recovery activity to happen, that's going to put some extra pressure on the sales.

• 5:32Ed Elson?

  Yeah, so interesting. Aside from the hurricanes or the lack thereof, which was interestingly a bad thing for the company, was there anything else? Was there anything that we learned about the consumer perhaps? I mean, I feel like Home Depot is generally considered to be like a bellwether for how the consumer is doing. Did that, did that play a role in these earnings here?

• 5:57Speaker 09

  You know, I think the consumer was definitely front and center and there was a, it's always a much talked about topic, as you said, with Home Depot as a bellwether. And their consumer is actually pretty healthy. It was interesting. Now, you may not think that when you look at the sales trend, however, big ticket sales were actually up a couple of percent. That would imply that people, when they do go to shop, they're opting for, you know, new innovations, newer products, things that may have advanced technologies within them. I'm thinking of appliances and power tools and things like that, where they are stepping up. So that would imply that the consumer has the money to spend. The homeowner, by definition, tends to be a bit more affluent, just because to own a home, you need to be.

• 6:40Speaker 09

  And so I think they're seeing resilience among their consumer. It's just they're not seeing people, you know, digging in deeper to go after bigger projects like a bathroom remodel or a kitchen remodel. And that's really what's causing the pressure. The day-to-day repair and maintenance is happening. And that's why I said earlier that the business is relatively stable because that underlying core business is fine. And we're seeing consumers spend in shop. It's just that incremental spend is not happening because that otherwise considered discretionary within the home improvement space is not happening because people are just a little bit more cautious. Maybe they're waiting for rates, interest rates to come down a little more to finance some of these projects. And, you know, home values are still up.

• 7:26Speaker 09

  But with lack of housing turnover, there's also some pressure there. Usually people will do some extra work to clean up the house before they sell it or soon after they buy it. And with the lack of turnover, that hurts as well. So broadly speaking, the consumer is somewhat resilient. They're spending. It's just that they're not spending beyond what they need to spend on the day-to-day maintenance.

• 7:49Ed Elson?

  Have tariffs played a role in the story here? I mean, Home Depot, I believe it imports quite a lot of its inventory. Have tariffs had any effect on the business?

• 8:01Speaker 09

  You know, so far tariffs have not had a significant effect at Home Depot, nor at Lowe's. I mean, we'll hear from Lowe's tomorrow, but I think what we've seen is that the tariffs, you know, over half of what Home Depot buys is domestic. So, you know, a little less than 50% is imported. Those goods, there are tariffs on. They've been able to mitigate a lot of the tariffs through negotiations with suppliers, through, you know, cost controls on their own end, maybe, you know, operating it more efficiently. And there has been selective pass-through. They've not really seen much pushback on the pricing pass-through that they've had to do. It's not been too dramatic. You do see it appliances, power tools, things like that, that

• 8:44Speaker 09

  come out of China or other parts of the world. But, you know, broadly speaking, tariffs were not a major impact in this quarter.

• 8:52Ed Elson?

  Yeah, but they are increasing prices and they are. Saying that it's because of the tariffs, in other words, it's impacting the consumer at least a little bit?

• 9:02Speaker 09

  Yes, I think broadly, yes, to expand beyond the Home Depot story, you're absolutely right. The consumer is very much feeling the impact of tariff-related price increases. There's no question about that. And I think the Trump administration response on food the other day really reflects that. You know, I assume when we speak here from Target and Walmart later this week, we're going to hear that tariff pressure is there. It's real. It's causing consumers to have less discretionary dollars. It's causing consumers to be a little sharper and tighter with how they spend. They're seeking out more value. So, yes, broadly, the consumer is definitely being impacted by the higher prices that are starting to flow through. And it's really just starting because if you consider when the tariffs really did jump

• 9:47Speaker 09

  up a little bit, inventory that's now hitting the stores for this holiday season and into next year, that's the tariff inventory at the higher tariffs that are in place today.

• 9:57Ed Elson?

  Right. Yeah. Just before we let you go here, what did we learn about the guidance? I mean, is there anything that the guidance for Home Depot could tell us about the economy at large? I mean, can we learn anything from these earnings about what will happen either on tariffs or on anything else going forward?

• 10:18Speaker 09

  Yeah, I think the guidance from Home Depot reflects the fact that the macro, more specifically the housing market, is still rather sluggish. And we're just not seeing that pickup that we would have expected to see at this point. Now, we are seeing a more stable housing market, and the turnover is running at around four million at an annual run rate, four million units are turning over. But we need to see it higher. We want to see it higher. And I think Home Depot wants to see that. They also want to see lower interest rates that would help people to finance projects. So I think their guidance shows that caution that we're just not getting that incremental lift from the industry that we would like to see at this point.

• 10:59Speaker 09

  I do believe Home Depot is taking market share reflected in their current business. I mean, it was positive sales. They generated $40 billion, $41 billion of revenue in the quarter. But the go-forward I think there's going to be some caution in 2026 as well. Tariff-related pricing pressure on the first half of the year on the consumer is going to continue to weigh on things. And so you may not see this sharp rebound in the first or second quarter. We're hoping spring, so maybe second quarter, you'll start to see a little bit of a lift. But it still looks like we're going to see more of the same for the next couple of quarters.

• 11:35Ed Elson?

  All right, Joe Feldman, Senior Managing Director at Telsey Group. Thank you for joining us. Really appreciate your time.

• 11:40Speaker 09

  My pleasure. Thanks for having me.

• 11:42Ed Elson?

  After the break, big tech embraces debt. If you're enjoying the show, give Prof G Markets a follow.

• 11:54Speaker 00

  Are your ad campaigns lighting up the dashboard? But not the pipeline? That's bull spend, and marketers are calling it out in. Dashboard Confessions.

• 12:03Speaker 01

  My boss asked for results, so I opened my dashboard for the only positive sounding metric I had. Impressions.

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• 13:28Ed Elson?

  We're back with Prof G Markets. What's the hot new trend in AI right now? Raising a lot of debt. This week, Amazon raised $15 billion in its first US dollar bond offering in three years. It's not alone. Google sold $25 billion worth of debt in the US and Europe earlier this month. Meta issued $30 billion of corporate bonds in October. Meanwhile, Oracle is already carrying $104 billion in debt, and it is lining up another $38 billion. All of this spending adds up. These deals have contributed to a record $6 trillion in global debt issuance this year. In sum, big tech is now financing the AI boom with borrowed money,

• 14:10Ed Elson?

  just as investors are starting to question how and when this AI build out will actually pay off. So here to explain the role that debt is playing in the AI boom, we are speaking with Robert Schiffman, Senior Technology and Internet Credit Analyst at Bloomberg Intelligence. Robert, thanks for joining us on Prof G Markets.

• 14:29Speaker 11

  How you doing, Ed?

• 14:30Ed Elson?

  Doing very well. Thank you for being here.

• 14:32Speaker 11

  Awesome.

• 14:32Ed Elson?

  So a lot of big tech debt headlines in the news recently. Amazon raising $15 billion. We saw Google raise $25 billion. Meta raised $30 billion. These seem like very big numbers, but for those of us who are less familiar with the debt markets, how big are these numbers really? Why are we seeing them? And why do they all seem to be happening kind of at the same time, or at least in the same month?

• 15:04Speaker 11

  Yeah, it's even bigger than what you said, because Oracle did $18 billion of public debt, and they're looking to do $38 billion of private debt. Meta did another $27 billion of off-balance-sheet debt. So we're actually in a record year for debt issuance, public and private. And it's a little bit of a question of if we build it, will they come when it comes to AI? I actually think it's the other way. I think the demand has come, so these companies are building it. And the reality is, this is just the early stages. There is a lot more spending to go. I think we're going to see hundreds of billions of dollars of debt.

• 15:46Speaker 11

  Um. Over the next few years, because we're likely to see $3 trillion of AI cap spending cumulatively from probably a handful of the largest hyperscalers through 2030.

• 15:56Ed Elson?

  So th- those names you mentioned there, uh, these are all companies that generally speaking already have quite a lot of cash on the balance sheet. You you'd kind of think that if you're Google or you're Meta or you're Amor- Amazon, that you don't need to borrow money. Do they need to borrow? I mean, do they not have enough cash already to just finance this themselves?

• 16:19Speaker 11

  Yeah, listen, you the old adage in the in the bond markets are you borrow money when you can, not when you have to. And right now, the market is still ripe for lending. If you can take down 10-year money with a four-handle on it, so a 4% coupon, uh, you're going to do that all day long. You can borrow 30, 40, 50-year money, uh, with a five, five-handle on it, you're also going to do that. The reality is they they have enough money today that if they didn't want to borrow another dime, they could probably get away with it. But what it would do is it really pulls resources away, pulls financial flexibility away, because most of these companies, other than Amazon, are also spending 30, 50, 70, in the case of

• 17:02Speaker 11

  Apple, $100 billion a year on shareholder returns. So how do you do everything is really the question. And this enables borrowing money, enables them to both invest organically, continue to do M and A, and pay significant dividends and share buybacks. Over the next couple of years, some of the companies like a Meta are going to be spending more money than they're pulling in, if they continue on a shareholder return path they've been on. So they actually do need money. Others, like an Oracle, which are triple B-rated, are just flat-out free cash flow negative. They're spending a lot more than they're bringing in. So it's a little bit idiosyncratic. But remember, for years, most of these companies,

• 17:42Speaker 11

  whether it's Meta, Google, Amazon, Microsoft, they've been very conservative in terms of their balance sheets, double A balance sheets, triple A balance sheets, 50, 75, $100 billion of cash, they've been setting themselves up for an opportunity like this. So they position themselves very well. That being said, borrowing money today makes a pretty good argument that they're going to spend a lot more money tomorrow.

• 18:05Ed Elson?

  You mentioned that, you know, there's this question of if we build it, will they come? You said that you think the demand already is there. I think the AI bears would say, well, yes, there's demand, but it's all kind of circular. It's all coming from the same people. I mean, OpenAI wants to buy compute, but, you know, Nvidia, they're the ones who have been investing in OpenAI and then OpenAI takes their money and spends it over at Oracle. In other words, the demand is artificial to the people who are worried about that prospect. What would you say to those people?

• 18:42Speaker 11

  Yeah, there's, there's been a lot of incestuous type of investing here. That doesn't mean that true third-party demand doesn't exist. I actually think it does. I think every single business is looking towards these large hyperscalers to create an AI backdrop for them. They cannot do that on themselves. Every one of these companies constantly are talking on their earnings calls about they have much more demand than there is supply, and that's why they're spending so much. I understand the naysayers because if you're spending hundreds of billions of dollars, if not trillions of dollars right now, and you're not seeing returns for the next two, four, six years, you get skeptical. In particular, the skepticism that was coming from the equity markets.

• 19:24Speaker 11

  We saw stocks skyrocket, all-time high valuations, expectations that every single one of these companies were going to the moon and beyond. The credit markets, though, have been, I think, a lot more based in reality.

• 19:39Speaker 11

  Spreads have gotten a little bit wider as all this debt has come. That being said, there hasn't been the same sort of panic or sell-off, or not 35 or 40% off from our highs, or just a little bit wider. And I think that's really the market that you need to look at to see, is there really pessimism? Is there really some sort of systematic problem? And the reality is, I think the market is much more fighting headlines on return on investment than they are whether or not these are going to ultimately pay off. They are going to pay off. The question just is how much? From a credit side? Pretty much everything's trading at par. Things are trading near historic tights. That says, or market is pretty comfortable that those cash flows are going to be there in the future.

• 20:24Speaker 11

  Equities are just a different story. Perhaps they got ahead of themselves and that's why they're coming back. And that's where we're seeing a little bit of the panic in the market. But we've been asked if whether or not this is a systematic potential risk. And I don't see it at all. And the difference between now and say the dot com era is the dot com era had companies that weren't generating any revenues. And raising, raising money via IPOs at ridiculous valuations that could never be justified. Here, you actually have companies collecting money. The reason why Amazon's stock took off after the end of the quarter was because AWS, its AI and cloud business, had its best quarter in three years off of really large numbers. And you're seeing that across the space.

• 21:08Speaker 11

  So we've got really big companies generating real revenues and real cash flows today. And they're spending money to make money in the future. I just don't think that the type of worries that people have out there really are justified.

• 21:23Ed Elson?

  Yeah, it sounds like you think that, you know, yes, they're taking on a lot of debt, but for the most part it's justified and responsible. Are there certain companies that aren't doing it right though? I mean, I think of Oracle as an example. You mentioned that they've taken on more than a hundred billion. Investors seem to be getting a lot more anxious. You mentioned their credit rating, I think you said double B or somewhere closer to junk. Are you concerned about a company like that? Or maybe a company like CoreWeave again, which is borrowing quite a lot? Are there companies doing it right and companies doing it wrong?

• 21:55Speaker 11

  Yeah, it's not necessarily right or wrong. It's just the starting point. So some of the largest companies like Microsoft or Amazon or Alphabet have double A or triple A ratings. So their balance sheets are already prepped for more borrowing. They have little or no leverage. Absolute debt might be high. They might have fifty or a hundred billion dollars of debt. But they also have a hundred or a hundred fifty or two hundred billion dollars of EBITDA. So in the world of credit, it's all relative. Leverage is still very low. As you move down the credit scale, somebody like Oracle, who's triple B rated, this is sort of important. They are investment grade. They're mid triple B. They've got negative outlooks at S and P and Moody's.

• 22:34Speaker 11

  People are worried that a name like that could fall to junk because the free cash flow is going to be so negative over the next couple of years. It doesn't mean they're doing anything wrong. And in fact, it appears as if they've got about three hundred billion dollars of contracts coming from what we believe is OpenAI. If that's the case, if they're spending money now, they're more than willing to go into a cash flow deficit in order to meet that demand over the next few years. So it's not a matter of right or wrong. It's just their balance sheet is starting in a different place. And what that means is that credit risk is going to be higher because they're triple B with a hundred billion plus a debt

• 23:14Speaker 11

  and adding more debt versus a Microsoft that's triple A that has less debt that's adding debt. So it's still a little bit relative. I don't think it's right or wrong. I think it's all sort of right. They're actually all going after very similar dollars. This is a huge pie of potential revenues, but there's only a handful of players here that are actually building super deep boats around them. They're going to make it so that you're not going to have, there's going to be such large barriers to entry that no one else is going to be able to provide these services. So if that demand does end up playing out, I think we're going to be looking back at now and saying, why didn't actually, why didn't they spend more money?

• 23:52Ed Elson?

  Yeah.

• 23:52Speaker 11

  I think that's a fair argument. As we just wrote a note on Amazon saying that they're going to spend a trillion dollars over the next five years. Is that too much or too little? I actually think it's going to end up proving to be too little.

• 24:02Ed Elson?

  Yeah. Yeah, I think those are all fair arguments. I think someone, my position at least, is that the very important word there is if. If it is the case that the demand is coming, if it is the case that OpenAI will spend those three hundred billion dollars. There are a lot of ifs, which I think make people like me and I think other investors kind of nervous. But just as sort of a general level. How much debt is too much debt? Like, at what point do we look at what's happening and say, yeah, we're going too far? Like, what is that line, do you think?

• 24:38Speaker 11

  Yeah, I don't think we're, you know, I don't think we're anywhere near it. And the reason why is credit markets, again, it's about relative numbers. If you have growing cash flow, if your EBITDA is going from 100 billion to 200 billion, growing your debt levels from 50 billion to 150 billion might not mean that much. Your leverage still might be very, very low. So your absolute debt levels might be really high. I think this market is ripe for dramatic more borrowing. If you look at some of these transactions, the amount that the books were oversubscribed. So the book talk on Amazon, they raised 15 billion in debt.

• 25:20Speaker 11

  The buzz on the book was it was 80 billion dollars of demand for that 15 billion dollars of debt. What if Amazon wanted to raise 100 billion dollars? How much would the book of demand have been? And it's sort of hard to say, but these deals are being way oversubscribed. There's a lot more money chasing this debt, particularly for the high-quality names than not. Yields are hard to come by. In a spread-compressed environment, generating alpha and excess returns is very difficult. These are all very highly rated, high-quality companies. People are not used to this levels of debt. I'm telling people, get used to it because we're gonna see more because they want to build more.

• 26:04Speaker 11

  And if you say to me, how much more can they borrow? I don't know what that number is. I just know it's more, and it's more by a lot. And by the way, let's say I'm wrong. I sort of sound bullish, right? Say I'm dead wrong and that you're only going to get half the revenues that these companies are expecting. The reality is the vast majority of them, certainly these double As and triple As, it's going to primarily be an equity impact. The credit profiles, you know, if you go from triple A to double A, you're going to get your money back. If you go from double A to single A, ultimately, you're going to get your money back.

• 26:38Ed Elson?

  Yep.

• 26:38Speaker 11

  But if your equity is valued at thirty times earnings and your revenues are growing at a much slower rate, fifty percent less than what the market anticipates, your multiple could be cut in half, your stock price could be cut in half.

• 26:51Ed Elson?

  Yeah.

• 26:51Speaker 11

  And you can get crushed. And I think that's a little bit of what's going on now, just like you said. Everyone's asking, though, what if this doesn't happen? What if those revenues don't come? What if they're not there? Um, it's really much more of an equity risk, even though this is being funded on the back of bondholders.

• 27:07Ed Elson?

  Yes.

• 27:07Speaker 11

  The equity holders are actually taking much more risk than the debt holders, from my perspective. And that's why you're going to see even more debt.

• 27:13Ed Elson?

  Yes, which, which is itself concerning for some people as well.

• 27:18Speaker 11

  Yeah.

• 27:18Ed Elson?

  That was very, very interesting stuff.

• 27:20Speaker 11

  Well, listen, these are the Mount Rushmore of credits.

• 27:23Ed Elson?

  Yeah.

• 27:23Speaker 11

  If you think about names that are positioned to borrow more money, these are the names. They've, they've run historically very conservative financial policies. They've got tons of cash. They generate a lot of cash. They can add a lot of debt. The rating agencies are providing support and letting them grow into the balance sheet. So what I would say for the, for the everyday person who's not even investing, this is a great thing. This means the benefits of AI are going to come to you sooner than later. Uh, and I think that's what all these enterprises are looking for. They are, they're desperate, um, to enhance efficiency. Sometimes it means firing people. Other times, it just means the ability to sell more products and services. Um, and they need these hyperscalers and they need these products and services quicker.

• 28:08Speaker 11

  So the faster they can be built, the better. And I think that's actually good for everybody.

• 28:12Ed Elson?

  All right. You, you are bullish. I'll, I'll, I'll tell you that much. We appreciate it. Robert Schiffman, Senior Technology and Internet Credit Analyst at Bloomberg Intelligence. Uh, Robert, this was great. Thanks for joining us.

• 28:25Speaker 11

  Thanks so much, Ed.

• 28:29Ed Elson?

  Well, as Robert told us, record year for debt, both public and private, more than $6 trillion issued this year. And as Robert also told us, it is only going to continue. In his words, expect, quote, more. Now, clearly, Robert isn't so worried about that. Part of that is probably because he's more focused on the credit markets than the equity markets. As he said, the equity investors are actually quite exposed here. And part of it is also that he is fundamentally bullish on AI. And that is a fair position, and many people take that position. But regardless of what you think of all of this, the point does stand, and that is that we are borrowing more money than ever before to build AI. And

• 29:14Ed Elson?

  that is important. And it's also highly relevant to a conversation that we had a few weeks ago with Andrew Ross Sorkin. You might remember, we had Andrew on to discuss his new book, 1929, which tells the story of 1929, and how the US stock market collapsed that year, and how it ultimately led to this Great Depression. We covered a lot of ground in that conversation. But there was one piece of the story that we perhaps should have dug into a little bit more, and that was the debt piece of the story, the enormous amounts of debt that investors on Wall Street and on Main Street were taking back in 1929 to finance their investments. Now, I won't explain exactly how that all played out.

• 29:57Ed Elson?

  If you want the full explanation, then I encourage you to just read the book. But I would highlight just one paragraph that I think really summarizes things, and which I think is probably the most important paragraph in the whole book. So here it is. Andrew Ross Sorkin writes, quote, "The almost singular through line behind every major financial crisis is one thing, debt."

• 30:22Ed Elson?

  It is a powerfully optimistic force. If we envision the future as a land of ever-expanding opportunity and affluence, why shouldn't we marshal some of those resources for use today? That's what debt does. It draws the wealth of tomorrow into the present. Problems arise when we get greedy and take too much. Nobody knows for sure where the line is or what to do when we discover we've gone past it. At that point, panic is the natural reaction. The future suddenly grows so small and so dark that there isn't enough optimism left to draw from.

• 31:06Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Patterson and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalhan, Isabella Kinsel, Kristin O'Donoghue and Mia Silverio. Our technical director is Drew Burrows. Thank you for listening to Profitey Markets from Profitey Media. If you liked what you heard, give us a follow. I'm Ed Elson. I'll see you tomorrow.