Tighter Capital
Summary: AI capex is the key catalyst for the US economy, and there isn’t any sign that hyperscalers are slowing down. There are signs, however, that capital markets may be reaching the limits of what they are able to bear. Editor’s Note: We have reserved the sections after Macro for our premium subscribers. If you’re not already a premium subscriber, please consider subscribing. Share The Transcript Macro The U.S. economy remains resilient “The U.S. economy continues to demonstrate resilience while managing through inflation and elevated interest rates and is supported by strong corporate earnings, healthy consumer spending, and continued investment in AI and digital infrastructure.” - Nasdaq ( ) CEO Adena Friedman AI is the key catalyst “Stepping back, the economy is strong today. The key catalyst, as I mentioned, is the historic level of investment taking place to facilitate the development of AI, including data centers, chips, equipment, power generation, construction and engineering services, and many other related areas. This engine is supporting exceptional corporate earnings momentum, as well as momentum in our own portfolio.” - Blackstone ( ) CEO Steve Schwarzman The consumer is also doing well “So I think the consumer has held up remarkably well.” - General Motors ( ) CFO Paul Jacobson “In this U.S. consumer segment, we’re reporting this quarter, 9.4% spend growth. It is the third highest we’ve seen over the last 3 years...and very strong growth in discretionary categories such as T&E and airline. So a lot of momentum and strength in our billings.” - American Express ( ) CFO Christophe Le Caillec “In aggregate, the consumer is resilient. We see 2% to 3%, 2.5% to 3% value growth across all categories globally. And that is unchanged, maybe a little bit better than what we saw and reported last quarter.” - The Procter & Gamble ( ) CFO Andre Schulten Consumer strength has been surprising “The consumer continues to show signs of strength. I think it has been a little bit surprising, not only to us, but to the industry more broadly.” - Synchrony Financial ( ) CEO Brian Doubles “The US economy has been supported by strong consumer spending despite inflationary pressures.” - JSW Steel (500228) CEO Jayant Acharya Spending is strong even though confidence is weak “If you’re looking at consumer confidence, you don’t feel great. But when you look at what the consumer’s actually doing, you feel a lot better.” - Synchrony Financial ( ) CEO Brian Doubles “...when you look at a lot of the consumer sentiment surveys, they really have become disaggregated from consumer behavior on the ground, and that’s evident in our average transaction price. It’s evident in our trim mix.” - General Motors ( ) CFO Paul Jacobson “It’s like the consumers don’t read the headlines. And so there’s kind of a wall of worry. And yet the consumer keeps on being resilient through this process. And so that’s kind of what we’re seeing” - Ally Financial ( ) CEO Michael Rhodes The AI players are price insensitive “This whole AI ecosystem build-out is kind of full on...And even with higher rates, the kind of desire to get the compute power in place, the players aren’t really batting an eyelash, up 25 or the back end of the curve is moving up a bit. So I think that’s relatively inelastic to pricing.” - Citizens Financial Group ( ) CEO Bruce Van Saun Inflation is expected to continue in 2027 “So as we look forward to 2027, it is an inflationary environment. It’s likely we’ll see more pricing. And while there may be a short-term consumer reaction...we’re confident that over the medium term that we can sustain both RIG and price.” - Nestlé S.A. (NSRGY) CFO Anna Manz Capital markets are tightening “Recent significant capital raises at other notable companies...have resulted in an increasingly challenging environment for raising capital. The Special Committee considered that, while the Company presently has sufficient capital resources for its current needs, in order to finance its funding needs going forward it would be prudent for the Company to do so before even more companies have absorbed available capital in the market.” - Meta ( ) Special Committee “As of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn’t have substantial revenue independent of AI data centers. SpaceX closed $40B of debt for GPUs, but we’re investment grade and have Starlink & launch revenue. That means the 200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many.“ - Tesla ( ) CEO Elon Musk Hyperscalers are stretching the limits of what they can finance “The Special Committee also considered whether debt financing could be an alternative for the financing needs of the Company but recognized that debt financing alternatives of the magnitude that Company management was considering could have an adverse effect on the Company’s credit ratings and would be a less attractive alternative for the Company.” - Meta ( ) Special Committee International
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