Dylan Patel: evaluation

Transcript context

…Right. Very plausibly, incremental CapEx every year is getting close to $10 trillion by the end of 2030, which is going to be close to a tenth of the world economy. If all of it’s going up in the US… The US economy will have grown as well. But still, at the current size of the US economy, it’ll be like a third to a quarter of the US economy just going towards data centers. As I say that out loud, I’m like, “Maybe you’re right and we just won’t allow it, and that’s the reason this doesn’t happen.” Because for this exponential to continue, a quarter of America’s economy is just building data centers. I believe in capitalism and reallocation of resources towards the most profitable thing. But at the same time, politics exist, credit markets exist, and capital markets exist. So to enable, let’s say, that 100 gigawatts by 2030… Or let’s even pare it down to 2028, where it’s like $3 or $4 trillion of CapEx across all of these items: over $2.5 trillion towards IT CapEx, and then another $1 to $2 trillion on data center and energy, and all the supply chain downstream, like semiconductors and all that stuff. If you’re at $3 or $4 trillion of CapEx, where does all this cash come from? No one is generating that much cash from the business yet. Hyperscalers funded all of the growth up until now. Google, Microsoft, Amazon, Meta. They funded a huge percentage of it. They were more than half of compute, but they now don’t generate cash. They actually spend everything on CapEx. In addition, they raise debt and spend everything on CapEx. You’ve seen Meta do it, even Amazon, even Google. Microsoft will be there soon. Everyone is raising debt to pay for their CapEx. Now who is the incremental person to pay for this that was not doing it before? In the case of Google, it was pretty simple for them to stop doing buybacks, or Meta stop doing buybacks, and turn around and buy computer infrastructure. That doesn’t have a huge effect on the market, but it does have some effect. But as you step forward to 2028 — where the hyperscalers are now raising hundreds of billions of dollars of debt, and then all of their supply chain is raising hundreds of billions of dollars of debt — who pays for this? So there’s a few different ways. There’s semiconductor companies like Nvidia and Broadcom and the memory companies turning around and deciding to fund some of this CapEx. There’s the traditional infrastructure investors who are gathering capital and investing in infrastructure. Instead of bridges, it’s data centers. Then lastly, there’s everyone in the economy who’s realizing, “Maybe I shouldn’t buy a home, or maybe I shouldn’t invest in credit that’s helping people buy homes, or maybe I shouldn’t buy government debt. I should just buy hyperscaler debt, or I should buy this data center’s debt, or I should buy Anthropic’s debt. Because Anthropic’s willing to pay 20% rates for the incremental billion dollars to build their capacity. Because they know their revenue from it’s going to be huge, and they’re going to pay 20% because it’s still better than renting it from SpaceX for $50 billion a gigawatt. ” So you’ve got all of this contention. But if you now do this, the whole world economy is really shifted around. You and I have been debating off air for the last few days whether there will be a sovereign debt crisis as a result of AI. The logic is this. As we were mentioning, you have a situation where very little investment turns into a lot of money. So the rate of return—…

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