Latent Space: The AI Engineer Podcast
01:22:57 · Shawn Wang, Jamin Ball
[01:22:57] S1: So you do that buildup, right? It's same name. Okay, who has what share? [01:23:00] S0: We talked a little bit about debt and credit markets. Right now, you want to go raise multibillion dollar debt for GPUs? No bid. No bid. Debt markets are close. There are big debt deals that aren't happening. Almost the equivalent of an IPO getting pulled, big debt [01:23:17] S1: deals Why is there a 100,000,000,000 in equity but no 100,000,000,000 in debt? [01:23:20] S0: Well, I think so. [01:23:21] S1: I'm gonna turn around and do those... Put those money right in the basement.
01:23:21 · Shawn Wang, Jamin Ball
[01:23:21] S1: I'm gonna turn around and do those... Put those money right in the basement. [01:23:26] S0: They're all looking at... They look through exposure. And any neo cloud or a hyperscaler that's raising debt is the biggest question the credit providers are gonna say is, well, who's the off take? Because the reality is that's actually who I'm underwriting because that's the customer. That's the one paying... That's the end payer of the bill. And if the end payer of the bill does poorly, the bills don't get paid. And right now, the end payer of the bills are Anthropic and OpenAI. So many of the data centers and the the the the... Built by the neo clouds are for OpenAI and Anthropic. And a lot of the credit providers are saying, I'm feeling kind of full. I just did a ton of debt for either one of these. And didn't matter if it was CoreWeave or Nebius or an upstart like a Volta or someone else. It's like, Hey, I'm feeling full. And I think debt markets just are gonna go through a little bit of indigestion. They need to figure out, well, do I feel good? Do I feel great? Hey. Some of these projects that were promised, are they being built on time? Is the revenue flowing back to me? And I do think the credit and debt markets will ebb and flow because there aren't just a thousand reasons why, you know, a project could get delayed. Right? And Neo Cloud could go sign a contract with OpenAI. They could sign with NVIDIA. [01:24:41] S1: They could
01:24:41 · Shawn Wang, Jamin Ball
[01:24:41] S1: They could [01:24:41] S0: go have Dell package them up. They could raise the debt. And then you know what? There could be local community uprising and picketing. I'm literally... I'm not even being kidding. And then it's delayed. Then what? Well, the debt was raised. Someone's got to pay the interest. What happens? And you have creative delayed draw facilities where the debt is committed, but you don't draw it down. But all of these have limits, and you get super in the weeds on SLAs who was responsible for it. Was it a delay in the supply chain? Was it a delay in the construction, the data center developer? Was it a delay by the operator? Was it something else like community unrest? That's everything that credit markets are thinking through. And then there's a lot of other super technical reasons we don't need to get into that make it difficult with credit default swaps and hedges going through the roof. So now it's for debt providers, it's tough to hedge the exposure they have. And so as the hedges get more expensive, your willingness to take on more risk goes down because you can't hedge out of it. Like, it's [01:25:47] S1: This is all the function. This is all symptoms of the debt market running out of money. [01:25:51] S0: Yeah. Well, I don't I don't know if debt markets are super deep. I think it's more of like an appetite. And, of course, there's a price for everything. Hey. Great. You know what? Go take out 5,000,000,000 of debt at 20%.
01:25:51 · Jamin Ball, Shawn Wang
[01:25:51] S0: Yeah. Well, I don't I don't know if debt markets are super deep. I think it's more of like an appetite. And, of course, there's a price for everything. Hey. Great. You know what? Go take out 5,000,000,000 of debt at 20%. [01:26:00] S1: But you don't see this... You see this at equity layer in... Like, so, like, again, how come there's a $100,000,000,000 of equity Yeah. That's gonna go into Anthropic and and Anthropic cannot raise a $100,000,000,000 or $50,000,000,000? [01:26:11] S0: I I think... I would... I don't know if I would say they can't do it. Yeah. I don't know if... Well, one, they they need to be rated. Do they want to? Yeah. My guess is Anthropic and OpenAI are happy that NeoClouds exist to take the balance sheet risk. Maybe they don't want to take that balance sheet risk because, again, it could be things out of their control that blow them up. You have a huge debt stack in your cap table and things out of your control [01:26:39] S1: go Someone else's problem. [01:26:40] S0: Like, you're not the one holding the bag. And again, this is like the beauty and the curse of why Neo Clouds can be great businesses, or they could be brutal businesses if the contracts aren't airtight, if things aren't structured well, your balance sheet business, you know, and just like fintech balance sheet businesses can ebb and flow, know, there's a ton of... [01:27:02] S1: Oops. Computer may have died. It's fine. We'll edit. We'll edit this.
01:27:02 · Shawn Wang, Jamin Ball
[01:27:02] S1: Oops. Computer may have died. It's fine. We'll edit. We'll edit this. [01:27:05] S0: Okay. You know, balance sheet businesses, right? Like there were a ton of fintech companies in 2020 that did super well when interest rates were low, that got blown up when interest rates were high. And balance sheet businesses can be really tricky and very cyclical. And you don't want to own a balance sheet business when a market cycle tips over. So hey, on some level, I'm sure, you know, especially for internal chip efforts, right, like the OpenAI team will... Might... May wanna develop their own data centers for their jalapeno chips. Right? And Anthropic, same thing for their chips. But I'm sure they're also very happy for other people to take on that risk because it's someone else's core competency, and, you know, a lot of debt could add a lot of blow up risk. And there was no debt on on the Anthropic balance sheet. Now they have facilities in place that they could draw down. And so would it surprise me if you start to see debt on their balance sheet in the future? No. I mean... But, again, it's like, you wanna build a gigawatt. Right? $50.60, $70,000,000,000. That's that's not that's not a trivial amount just for... And that's just just one gigawatt. I think both OpenAI and Anthropic have said they kinda wanna get to five by the end of the year. Who knows if it's if it's that or something more or less than that? [01:28:18] S1: Are they about equal? [01:28:19] S0: I don't know. Okay. That's interesting to me.
01:28:19 · Jamin Ball, Shawn Wang
[01:28:19] S0: I don't know. Okay. That's interesting to me. [01:28:23] S1: Because I I think Anthropic OpenAI was ahead. Correct. Yeah. Right? By by a lot. Yeah. Exactly. But I think Anthropic slows the gap a lot. And OpenAI at at least started... Like, Stargate was a plan... The first stage in a plan to get to 30. Mhmm. 30 gigawatts. Mhmm. Mhmm. And so Like, twenty thirty. Yeah. So... So I was like, okay. Well, that's I I haven't heard that plan from Anthropic. [01:28:40] S0: But again, like, let's let's hit... Let's do some fun math really quick on the fly. Let's see if [01:28:44] S1: I can do it.