00:00Amazon is raising at least $25 billion in U.S. bonds to fund its AI spending, which Bloomberg Intelligence says
00:06could top $300 billion of CapEx next year.
00:10Let's discuss with Bloomberg Intelligence credit analyst Robert Schiffman and Bloomberg Tech host Ed Ludlow.
00:15Robert, on this deal, every day, not every day, I'm exaggerating, it feels like we have some hyperscaler coming to
00:21this bond market and tapping it.
00:22And for the most part, maybe we put aside SpaceX.
00:25The market absorbs it.
00:26How far can these companies take it?
00:28How far can they increase their leverage before we start looking at things like credit downgrades?
00:33I think you better get used to having me on set because we're going to see a lot more of
00:38this.
00:38Which is a treat, by the way.
00:38You could just ask, you know, Roberts.
00:40We have said this over and over again.
00:42The biggest hyperscalers I would consider to be on the Mount Rushmore of credit.
00:47These are AA and AAA names that have hundreds and hundreds of billions of capacity.
00:54Somebody asked me this morning, what would it take to have one of these names go to junk?
00:59You're talking a number that would be, I think, over a trillion dollars.
01:02So I just think that what we're seeing here, supply continues to fall well behind demand.
01:10Spending is going up.
01:11And the only way to spend is to borrow more money.
01:14Do they borrow at fixed rates or what happens if the Fed does have to hike a few times?
01:18Yeah, well, primarily all this extended duration borrowing is all fixed.
01:23So now you're locking in costs for 10, 20, 40 years.
01:27Remember, Alphabet did a 100-year bond via pounds a few months ago.
01:31So you don't have to worry about rates necessarily going up other than why not borrow now if you think
01:38rates are going up.
01:39It's actually an incentive to come to the market sooner rather than later and lock in these deals.
01:44Ed, that's the debt side.
01:47For how long can the equity side hold up?
01:49Because there does seem to be this narrative emerging saying you need to have a return on this investment.
01:54You can't keep spending without any fruition coming from it.
01:57The equity side is much more closely tied to is Amazon or AWS in particular good at AI, right?
02:03And they've kind of demonstrated in more recent history that they are, or at least the market gives them credit
02:08for it.
02:09You know, the thing about what Schiff outlines in the Bloomberg Intelligence React, I find fascinating,
02:15which is if CapEx is going to be $200 billion this year, why would it jump to $300 billion this
02:21year, next year?
02:22And the way that Amazon explains it away is not necessarily that
02:26that you have to keep building data centers to meet with that AI demand.
02:30CapEx can also go up because the cost of building data centers goes up, right?
02:35That has nothing to do with AI at all.
02:36There is construction labor inflation.
02:38We know there is great memory price inflation still, right?
02:41We're very focused on this idea that memory supply is tight.
02:45Continue to look at memory pricing.
02:46And so, like, that was so interesting when he published the React.
02:49And the thing about it is that Andy Jassy tried to explain that in the prior earnings, April 29th.
02:55They said it several times, capital expenditure growth is outpacing revenue growth.
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