The Compound and Friends
00:44:40 · Josh Brown, Michael Batnick, Alex Altmann
[00:44:40] S0: needs like ten minutes to digest right. So what's [00:44:42] S2: going on is what's So going on the chart on the right the chart on the right is year over year revenue growth. And as you could see, it's accelerating. Okay? Obviously, because of the AI trade, cloud is the beneficiary. So it's growing at 30%. It hasn't grown at this rapid of a rate since the third quarter of twenty twenty two. At that time, it was doing $23,000,000,000 in revenue. The fact that it is accelerating when it is literally almost three times the size is unmodelable, unfathomable. Unpredictable. Unprecedented. And yet, today, the $25,000,000,000 debt offering and the stock is down. I mean, they they cannot have done... They cannot be doing any better. Could not have had a better quarter. Stock is down. [00:45:28] S1: Yeah. So shouldn't we just be asking the question of if you're spending that much money, and right now, yeah, you're... You've got phenomenal revenue growth, what's it gonna come at the cost of? Right? Last time I shared, I think Microsoft's still still operating cash flow positive right now. [00:45:47] S2: It is. Yeah. So it's I [00:45:48] S1: think it's the only one. [00:45:48] S2: Also, the stock had a monster run. Alright? So, like, it... It's near... It's at an altmann high, basically. But there... The the bar is high.
00:45:48 · Michael Batnick, Josh Brown, Alex Altmann
[00:45:48] S2: Also, the stock had a monster run. Alright? So, like, it... It's near... It's at an altmann high, basically. But there... The the bar is high. [00:45:56] S0: The... The shock that we were in a fifteen year period of massive buybacks, and now that's gone into reverse. Now we're looking at stock issuance from not every company, but from these gigantic companies that are super meaningful to the index. [00:46:13] S1: Yeah. Yeah. We we It's a different environment. We we talked about this. So we, yeah, we did a lot of work around this, and it... It's... Okay. So you you can't just look at equities in isolation. That's the first thing. Right? So you're right. So 2026 on our modeling numbers will be a positive net issuance year. Which is basically gonna be from what we can tell essentially the [00:46:32] S2: first time. [00:46:33] S1: Barely. Okay. But goes back to that discussion earlier when if you're if you typically were retiring net negative issuance of $4.05, $600,000,000,000 a year, and now you've had a multi $100,000,000,000 swing. [00:46:47] S2: It's different. [00:46:48] S1: It's different. It's different. Right? And then the second thing is the competition of capital. Right? Because 2026 net IG and high yield issuance is gonna be $1,200,000,000,000. Right? And then, obviously, the government needs to go cap in hand as well. [00:47:04] S2: But it's all being absorbed still. It is. For the most part. [00:47:08] S1: But but risk premium has widened as a function of [00:47:10] S2: it. Right?
00:47:10 · Michael Batnick, Josh Brown, Alex Altmann
[00:47:10] S2: it. Right? [00:47:10] S0: Let's put some of his charts up, and let's do chart 11, Daniel. So so so tell us what's going on here. [00:47:19] S1: Okay. So this is just simply looking at the it's just an equal weighted index of the spread of a bunch of data center bonds against, the equivalent, benchmark, which I I think the average average duration is about seventeen years. So we just took the twenty year twenty year, treasury. And, you know, you can see that that's sort of steadily widened, and now it's sort of not steadily widening. And, like... So, yes, you're right. It is being absorbed, but at a price. Right? And so the prevailing market narrative, right, at the moment, we talk about narratives, is that there is no price that this AI trade doesn't make sense. NVIDIA will tell you that. Meta, to a degree, will tell you that. Microsoft will probably tell you that based upon their revenue growth numbers. Right? But the reality is a little bit different. There is a price. Right? And I think what the market is doing right now is trying to get to the point where that where that price is. It's trying to work out, is there a price where you guys won't wanna pay? [00:48:25] S0: Put up chart 12. So you are saying [00:48:29] S1: This is my favorite chart. [00:48:30] S0: The first time there has been real competition for capital in a higher interest rate environment. What are we looking at?
00:48:30 · Josh Brown, Alex Altmann, Michael Batnick
[00:48:30] S0: The first time there has been real competition for capital in a higher interest rate environment. What are we looking at? [00:48:36] S1: Right. So this goes back to the point that you're not you're not just issuing in a vacuum in equities. You're issuing at a time when the government's trying to get money, and they're running a significant deficit. The debt market, whether it's hyperscaler issuance or otherwise, just other corporate financing needs, are issuing, as I said, $1,200,000,000,000 in net issuance. [00:48:57] S0: The competition. [00:48:58] S1: Yes. Right. And then equities is now... You've completely offset or mitigated the buyback effect. Right? And so you take each market in any given year, and you work out how much issuance was as a percentage of that market size, and then you get a percent, obviously. You add up those three percentage numbers, and then you basically put it on that as a dot, and you compare it where two year yields were in that year. [00:49:20] S0: So why is this such an anomaly this particular year? [00:49:23] S1: Good question. So, effectively, this chart is to tell you that, you know, corporate finance and econ one zero one holds true over a very long period of time, and this goes back to, I think, 1995, if I'm not mistaken. [00:49:35] S2: Meaning higher cost of capital, less issuance. Correct. [00:49:37] S1: Yeah. Kinda makes sense. Yeah. But apparently [00:49:39] S0: Not today.
00:49:39 · Josh Brown, Alex Altmann
[00:49:39] S0: Not today. [00:49:40] S1: We've just... We've decided, and this is like the AI narrative. AI does... AI can ignore that. Right? And the the chart before, the the, you know, the IG, chart of of data centers debt is telling you you can't ignore it because spreads are widening. And they're gonna continue widening to the point where it's effectively going to either test or break the market. And we're we're we're we're seeing, like, cracks already. That's what CoreWeave is about. Yeah. Right? That's what Neo Cloud's more holistically about. It's about the fact that, actually, AI financing does have limitations. It may not apply today to hyperscalers who still are cash volcanoes, but it is certainly applying to, you know, levered, sort of plays on forward compute. [00:50:23] S0: Well, so the market efficiently is, I guess, like, the way to think... The way I would think about this is it's rationality in the market. Yes. It got to CoreWeave before it got to Alphabet, which is the way it should work. [00:50:38] S1: Yes. Mean... [00:50:39] S0: Okay. Give me 13, guys. What... You're saying equities are also finally catching up to the moves in credit by way of a bid to quality, and this is your balance sheet efficiency. What... Like, ex ex... I guess, explain to the viewers what they're looking at and why this is meaningful to you.
00:50:39 · Josh Brown, Alex Altmann, Michael Batnick
[00:50:39] S0: Okay. Give me 13, guys. What... You're saying equities are also finally catching up to the moves in credit by way of a bid to quality, and this is your balance sheet efficiency. What... Like, ex ex... I guess, explain to the viewers what they're looking at and why this is meaningful to you. [00:50:59] S1: Yeah. Sure. So, look, obviously, what what we try to do as a team is try to take relatively complex concepts in the market that may all be produced by other parts of the bank or by us and present them in ways that kind of make sense. Right? [00:51:17] S0: Right. [00:51:17] S1: And so equity markets are amazingly efficient below the surface. Right? A lot of people just look at the S and P and go, it just goes up or, you know, whatever. And, yeah, and as we know recently, there's these tons of rotations, and those rotations, some of them make sense, some of them may not. But this is a classic example of, like, one of the visualizations of that rotation. Right? And it's hard because this is a slightly longer time series. But, essentially, what it's telling you, the orange line is the behavior of Those are stocks. Those are... This is a basket of stocks on the long side versus a basket of stocks on the short side. So it's an RV trade just like the triple c versus double p spread is also [00:51:55] S2: So this is intuitive. If you need to borrow money, money's expensive. You're in much bigger trouble than the companies that have a stronger balance sheet.