The Utilities Analyst Who Says the Data Center Demand Story Doesn't Add Up

UKG. Their HR pay and workforce management tools help business leaders empower their people, because when work works, everything works. Learn more at UKG.com/work. Bloomberg Daybreak is your best way to get informed first thing in the morning right in your podcast feed. Hi, I'm Karen Moscow. And I'm Nathan Hager. Each morning we're up early, putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15-minute podcast on the latest in global news, politics, and international relations. Listen to the Bloomberg Daybreak US Edition podcast each morning for the stories that matter with the context you need. Find us on Apple, Spotify, or anywhere you listen. Hello, and welcome to another episode of The Odd Thoughts podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, imagine you are a utilities analyst. Yeah, fun. And for years, you are laboring in the utility analysis mind. And you know, we like talking about utilities. We like talking about energy. We find pretty much anything interesting, equal opportunity interest people we are, but you got to say utilities for a while, some people would say it was a little boring. No, that's right. I mean, for most of our careers, I think if your utilities analyst, a really big part of your job, and maybe I'm wrong, but I just in the popular discourse was like talking about yield relative to treasuries, right? They were seeing a sort of bond like instruments, etc. Maybe a little bit of growth, but roughly. Revliable safe haven-ish dividend plays, I guess. Totally. And since I know we're going with this conversation, one of the themes of the last few years has been what I would say is the old industries that were either stable or cyclical becoming secular in the way they grow. I think that's right. So what is happening now is if you were, I don't want to say a lowly utilities analyst, but maybe a sort of forgotten utilities analyst outside of your sector, suddenly you are very in demand, right? Because all you hear about nowadays is the AI build out and energy constraints on that. And so obviously a lot of people want to look at it from a utilities perspective. Totally. I always think like what a great luck that some people have in their careers. You know, you can be an analyst in learning modeling skills and all kinds of stuff and then you get allocated. And someone gets allocated, I don't know, farm equipment. And another person gets allocated to, they wind up in utilities in 2022. And it's like, man, they're on TV all the time. My old boss at Business Insider, Henry Blodgett, it's like, he was there as an internet analyst in like the late 90s. What an amazing timing and luck. But it's like journalism. Yeah, it's the exact same thing. I started out covering airlines of all things, but those were interesting. Anyway, I'm glad to say we do, in fact, have the perfect guess. So we're going to be speaking to a utilities analyst. Someone who happens to have a very scary intake on the data center build out and how much energy is actually required. We've been hearing a lot from people who are very, very bullish on the data center build out. So this will be a useful point. I love it. I love it. Okay, so without further ado, Andy DeVries, head of investment grade credit and head of utilities and power over at credit sites. Thank you so much for coming on all thoughts. Thank you. The pleasure is mine. So is it great to be a utilities analyst right now, even better? Well, your Bloomberg news reporter Josh Shaw wrote an article about the how much it's changed for the utilities analyst now with the data centers are here. But to push back, we did have the largest bankruptcy of all time in Enron. Oh, yeah. The largest LBO of all time in TXU, which then went bankrupt. And the largest private equity return ever in CalPine, 25 billion, which exceeds Apollo's Lionel trade and Blackstone's Hilton trade. So we have had a lot of fun along the way. Have you been a utilities analyst throughout that entire timeline? How long have you been doing it? I started with the first pack gas bankruptcy and then went to the second and here we are with data centers. It went 25 years. Wow. So you really have seen it all. It is fair to say you're absolutely right. There have been some disasters and home runs and utilities are, you know, they do get central in the news obviously with the fires that we saw. For example, California several years ago and the court trial is about allocation of risk in those situations. You mentioned Enron, et cetera. But it is also fair to say that much of the discourse in day to day has been like these are sort of bond like instruments. Absolutely. Before we get into that, just like sort of like talk to us about what a what a normal day is like and when you're thinking about you until before, you know, pre data centers. Yeah, pre data centers, five years, whatever. Pre data centers. You're looking at a lot of rate cases. You're studying a lot of local news. You're looking at legislation. You're reading, you know, dry regulatory documents. And then you're tracking natural gas prices because that's setting the price of power. And then on the federal level, you obviously have the renewables, displacing coal. And that's, you know, obviously having a big impact now. So it's it's a lot I actually think it's a lot of fun. My impression was always the policy aspect of it seemed kind of the most important thing to keep track of. Is that right? Absolutely. And that's down to the state level, but also the federal as well. Yeah. We've done a few energy episodes still trying to wrap my head around the sort of patchwork of rules that seem to cover our energy infrastructure. But anyway, there's something a little ask me about the way like you talk to people in the space and you're like, well, how is this get priced? And they're like, well, are you talking about market or central? It's like, okay, I don't know. You know, it's like, are you talking about a rate board or are you talking about market prices? It's so hard. Anyway, especially in a 40-minute podcast to try to generalize that. But I love the people. Don't get me wrong. Those are my favorite people. Anyway, Andy, what is the mood like at the moment among utilities, people, analysts, investors? Wasn't there a conference recently? Everyone's gung-ho on this. So the biggest conference of the year is E.E.I. in November. And it was packed, it was standing, we're mulling for some of these presentations. Wow. Your competitors at CMBC, we're broadcasting from the floor. Is that the first time that I have? Probably a sign of a top. So yeah, people are very happy. And then just to quantify it, utilities have generally grown around four or five, six percent a year. And then that's moved to five to seven percent a year. And now certain names, which we'll talk about later, are up to eight percent a year. And that's driven by data center growth. Talk to us a little bit more about that. So what is the, I mean, I'm like looking at a chart of the XLU ETF. I don't think it's like done insane. But talk to us a little bit about like maybe quantify the exuberance for us. So it's like, okay, we are no longer just in the business of measuring bond proxies and looking at policies, etc. There was a secular growth driver. Talk to us about like the bull case. And then also how we would see the bull case, sort of like how it's manifesting in the tradable instruments. Sure. And you pulled up the graph of the XLU. Obviously, it's still a very interest rate sensitive sector. Yeah, that's right. You can find dividends. You can find higher yields and other fixed income instruments. So you know, maybe didn't do so well last year. But the industry argues that as this EPS growth rate goes up to the high single digits, mid-high single digits, that it shouldn't be as interest rate sensitive. So that's the big debate going on with investors right now. And this talk, I mean, the XLU has done well. If you zoom out, it looks pretty good. It's done well. That's my impression of a Bitcoin investor, by the way. Zoom out. Well, right. And you've gotten that coupon, right? So like you get, so like you might in normal times just be happy with a coupon, you're getting a coupon plus. I mean, it worked out. The Fed might zero interest rates for so long. So utilities are the place to be. That's just math. And then as soon as the Fed starts checking up rates, chat GPT comes on the scene and all of a sudden there's data centers. So now all of a sudden you're taking the leg up on growth when you don't need to be so interest rate sensitive. Interesting. So one of the reasons we wanted to talk to you is because you have that contrary intake on the data center build out. And we wrote it up in the all thoughts newsletter, which everyone should subscribe to. It got a lot of attention. Your analysis, interestingly, is just based on some pretty simple math. So why don't you just to start out with why don't you walk us through the calculations that you're actually making to try to analyze how much capacity the utilities are taking on to actually power data centers. Sure. So as you said, it's pretty simple math here. So utility is so data centers now are consuming around 45 gigawatts of power. And you can switch between capacity and throughput. I'm going to stick with capacity. Okay. So 45 gigawatts of power. And then there's lots and lots of third party estimates for where they're going to be in 2030. And they just center around this, you know, 90, 95 gigawatts. So you need to add 50 for 2035. There's a lot fewer estimates. You come around 160. Now these estimates, they, you know, they're all over the place that come from cell side banks. They come from consultants. They come from everyone. BNEF has one there. I think one of the best out there. So thank you. We use them a lot. So that's on the demand side or where you're going to come out in these. And then you look at the supply and everyone talks about the demand, right? But then you look at the supply and all these tech bros are too cool to actually look at the supply and do utility analysis, right? Who wants to be utility analyst? You were making fun of us before. But if you look at this, you're fitting you. But when we realize our opinion is misplaced, but we're not making fun. Anyway, great. So you look at the supply and these utilities are tracking all these data centers conducting to the grid because they've got to do a lot of work, spend a lot of money and transmission, distribution, new substations, transformers. It's a lot of work. But it boosts earnings growth. So they're happy to talk about this. And so you look at where they're at and where they see things coming and they've got around 140 gigawatts of near term supply. Now, it's the utilities. They break out what's firm, committed sign contracted versus pipeline behind it because there's a lot of double triple quadruple counting. So if you're going to build a data center in the southeast, you're going to tell Duke, you're going to tell Southern, you're going to tell Dominion, you're going to build one. So that's the pipeline potential. But looking just at the firm committed, whatever they want to call it, you're on 140 gigawatts. Now, that's, you got a PUE adjust that. So when you connect to data center. What's PUE? When you connect to data center to the grid, you've got lights, you've got cooling, those third party estimates I gave you are just for raw compute. Why did you split those out though? Because I mean, all data centers are going to need to be cooled down. What's the point of splitting it out? I'm not splitting it out. I'm just adjusting it downward because the third party estimates are just compute. So if you're connecting to the grid, you're going to ask the lights, the cooling and everything. So I want to go apples to apples versus the third party. So what is PUE's to import? Power usage effectiveness. Power usage efficiency. So they're at 140. So that PUE's down to 110 on apples to apples. So just to go back, you only need 50 on the demand side between now and 2030. And the utilities are working at connecting 110. So the utilities are working on already connecting almost as much as you need by 2035. So again, just to make sure in the same page, third party estimates, 45 gigawatts for data centers now, going to 95. That's 50. Utilities are working on 110. They don't give timing for that. Some of it's going to be past 2030. I'm trying to say is there is a lot of supply of data centers coming. And it's very unclear if there's going to be demand for this. So that's that's the issue there. And then it might be worth pausing that and just saying how we're tracking these things. So what we do for the demand side is we use the original AI agent. You know, that is a Gmail alert for the best. So we, anything that's not on our trade pubs, not on Bloomberg news, we get picked up by a Gmail alert. And so then we get all that in a spreadsheet. So that's on the demand side. And then on the supply side, we use Diego. And that's not a large language model. That's my junior sitting several blocks west of us right now. So he tracks all this and utility calls just yesterday. Next era moved another two gigawatts from the potential into the committed. And these utilities are shopping at the bit to sign more and more of these deals. And I think it's just going to be oversupply. We're going to overbuild these things. Just to be clear, the commit the firm commitments. Those are signed agreements to actually build this capacity. Yes. Okay. And so I was talking with the CFO of Encore and they made these comments on their call as well, they're owned by Sempra. And I said, you know, no one really believes these day man estimates. Texas is a walled off market. As you guys know, 87 gigawatt peak market. That is the one thing I know about Texas is its own walled off market. There you go. So 87 gigawatt peak market and the demand estimates are they're going to add 30 gigawatts by 2030. And I said to the CFO of Encore. I said, there's just no way. And he said, it might not be 30, but it's going to be closer to 30 than it is zero. And I said, I just the forward power curves don't reflect that at all. And he said, then they're mispriced. So just for the benefit of your users, you cannot trade forward power in Texas on interactive brokers. I know that. That's too bad. Everyone's looking up that. That's what I said. Great. And this gives us a bunch of technical questions to get it to. UKG, their HR pay and workforce management tools help business leaders empower their people. Because when work works, everything works. Hey, there are a lot of listeners. As we come into 2026, we are realizing that one thing we're constantly thinking about on the show is how companies actually get built. Not just like the headline version of that story, but the messy operational reality of it. Right. We love messy operational reality of things. The never ending question, dive deeper, how companies make it big? What causes one company to succeed? Why others fail? Well, I have good news. That is exactly what the acquired podcast does. Ben Gilbert and David Rosenthal pick a company and then explore all the ins and outs of its trajectory. Lots of detail there. How it scaled the ups and downs and so much more. Yeah. And we had them on Adlots back in February last year. We talked to them about everything from TSMC, Nvidia, Mars, Hermes, scale, capital structure, the importance of incentives, all of the different, I guess, ingredients that go into some of the success of these names that we talk about every day. Also, their show actually turned 10 years old in 2025, just like us. So we're, I guess, the same age in podcast years. Big year. Anyway, if you like Adlots glue, we get into various market dynamics, how the economy actually works under the hood. You'll obviously appreciate and enjoy the acquired podcast. They do similar works, similar ideas, all focused on the context of individual company. So go check out the acquired podcast. You can find them wherever you get your podcasts. Let's just keep talking about Texas. Explain to us kind of what the forward power curves are and how you can back out the implicit assumptions that traders are making based on those forward power curves about how much demand there's going to be. Sure. So I mean, obviously if you're going to go from 87, then you're going to add 15 or 30, whatever it is, you'd expect that curve to go higher. What's the curve measuring? Okay. You say there's a forward power curve. So the forward power curve is around the clock, peak or off peak. There's three separate curves. And the difference in peak and off peak is actually narrowed because data centers run 24/7. So it depends on your North Texas or South Texas, and those are in the high 50s. But what would we be seeing in the curves for like, are there trading happening at the 2030, 30, might not be so liquid, but 27 and 28 certainly are. But there is another energy market. So if you look at net gas, for instance, although gas traders are really weird about the futures curve in gas, which I don't really understand. But if you look at that, you point out that over the longer term, it's downward sloping, which suggests that there isn't going to be as much demand or maybe there's going to be more supply out in the future. I love it. We're morphing into natural gas, because that is the main driver of power prices, especially in Texas. And the forward curve for gas is much more liquid than it is for power. And the forward curve for gas is inverted. It goes from 370 to 360 by the end of the decade. So as my energy analyst Charles Johnson points out, the bigger driver there isn't data center demand. We're at six BCF a day there. A lot of people are about 10, 12. We can get into that. But LNG exports were exporting 18 BCF a day now. We're going to add another 12 like you'd think that curve would be at least upward sloping by 25 cents, 30 cents. By the way, you can trade that in your interactive brokers account. So that goes into is there going to be a glut of LNG. It starts getting outside of the expertise. But that's, but we heard from a lot of clients last week when we went on the road all over New York City. This is very interesting. I actually want to ask another question about the pure worker. But since we are on LNG and then we can get back to the power curve, just setting aside data centers, etc. Intuitively, you would think that what is a growth business in the United States? LNG exports. And in fact, one of the sort of policy debates around the whole question of building out LNG terminals is it's going to make gas more expensive for American consumers because now we're going to be competing with European buyers. Whereas when we didn't have a LNG export terminals, we were just swimming in it because it had nowhere to go, nowhere to go. So it's very interesting to hear that even with everyone acknowledging a booming domestic demand and be the expansion of international demand that downward-sloping gas curve. Yes. Maybe I don't know. Maybe they're reflecting world peace in Europe and Russia, LNG is inaccessible to the rest of the world. That could be a driver. Then they would have to rebuild that pipeline. But back to our original conversation on demand. The reason I was talking to the encore CFO and asking him about this is he said he's holding $2.5 billion of cash collateral postings from some of that demand. And he's like, you're not some, you know, Joe Schnov start up, I'm going to build a data center and connect to your grid. If you're posting $2.5 billion and he says, and this is what he said in their earnings call as well, you know, that's real demand that is coming. It's material. I'm sorry, it's just now to go back to the power curve, which I get is much less liquid out there, but there are trades that happen. These are price, like, how do you infer volume from price? Because these are price curves. We don't get the volume, but it's a it's a yearly curve. And then right before the year starts, it's plus into 12 month curves. And then it goes into weekly before what I'm saying is how do you infer what expected volume in 2028? It's just from a price curve. Sure. It's flat. It goes up a dollar from here to 2030, whereas if you're going to add 20% to your grid man, then you'd expect it to go up several dollars. All right. And then on the gas side, I'd want to see 40 cents, 50 cents. I see what you're saying. Okay. And then just to go back to the fork, your upper 50s in Texas, low 60s for peak. And the data center companies are paying 95. So Vistra just did a deal of $95 what? Dollars of megawatt hour. Okay. For around the clock. So Vistra contracted out its command sheet peak plant in Texas, $95 a megawatt hour. So big tech is paying a very pretty penny. You can argue some of that's for the CO2 free aspect of it. And some of it's just a lock in the supply. So just to go back to the math and your overall argument, I mean, you're basically saying that utilities are already committed to building out, I guess twice as much capacity as is forecast to be needed by 2030. So wild card to me seems to be the demand forecast, right? And we're already seeing those change pretty wildly. I know you mentioned Bloomberg NEF, but you know, they've they've raised their forecast because of the data center build out. So they've raised their forecast of how much energy is actually needed. How much confidence do you have in those demand numbers? And how could they change over time? Moderate confidence, but like look where we're at now, like open AI built all the chat GBT using two gigawatts. All the big tech hyperscalers, they haven't given their 2025 volumes yet. But if you take their 2024 volumes and then double it, and this is output. So I'm going to transfer it back to capacity and use some of 60% capacity factor. All the hyperscalers combine around 15 gigawatts. And that's got to be over half the data center to band. So to talk about 95 gigawatts, I mean, it's a staggering number. And then you get more advances in, you know, Nvidia chip efficiency. Yeah. Obviously, Jevin's paradox kicks in. You've had numerous guests talk about that. It's just a lot of power, a lot of power. Can you just remind us one gigawatt is enough to power what I like these comparison million homes, but it depends if you're in Florida or the Northeast, but generally speaking, that's where you're at. Not only do I find electricity markets, so in market structure and electricity, very difficult to wrap my head around. Even after all of these conversations, I have built no heuristics or intuitions for what these, a gigawatt, kilowatt, megawatt. Like you say these things and I know a gigawatt's bigger than a kilowatt. Like what does actually mean? And then the fact that even there we're talking about the difference between a gigawatt and a gigawatt hour and the like I have yet to develop the sort of intuitions that I have it. Have anything back to the future? Yeah. One, one, one gigawatts. Oh, there you go. We got to print out, you know, a little tape. I need the chance. Like the way we used to do for credit ratings, the financial crisis, we need that up there. And actually credit ratings are going to be interesting from a utilities perspective as well. Can I just ask, you know, obviously one of the sensitivities in general, with all things data center and utilities of this view. And I think it's kind of overstated is the average rate payer going to end up paying for a lot of data centers. Or we'll raise our electricity bill. And I understand like these are complex questions and the math is in so clear. And also from what I understand, the emergence of a data center can actually lower the consumer's electricity bill because there's just that simple math, which is if there's more buyers splitting the cost of the build out, then actually your price tag can go down. But in the scenario, you're laying out in which there's a bunch of upfront capital investments and everyone is very excited to build it out net credit wires and you have to back transformers and gear and all this stuff. If the demand does not materialize as expected, that does sound like conditions in which we could see consumer rates go up. Absolutely. So that's what we're spending all our time on. And it's state by state. And even within the same state, you've got numerous jurisdictions. So is it legislatively mandated or is it done by a rate case or in the case of northern Indiana have the companies themselves, data center companies themselves gotten ahead of it. And so we're going to put in a solution where rate payers are absolutely protected and get money back. So you look at nice source with a midwestern utility, they own northern Indiana public service nipsco and they've got a deal where they've got a inside rate base. They've got a separate Genco. So they saw and that Genco is doing a deal with Amazon. And they're going to kick back a billion dollars over 15 years, two rate payers. So rather than have a debate, oh, who's funding what? It's like done and you get 67 million dollars a year. And that's the blueprint. That's the gold standard. Now keep in mind, six months before that Genco is launched, nice or a sold 20% of nipsco to blackstone. So you could argue blackstone said, hey, let's go ahead and do this. And then the utility right north of Indiana or northeastern Indiana is Ohio and the CEO of first energy is an ex-blackstone guy. So maybe they look at doing a Genco or something like that. That's pure speculation. I have no idea. Pack gas, specific gas electric, they've done a deal where they've got rates in place that protect residential rate payers. Amberin has, but a lot of utilities don't. They don't have these protection. And the point is someone, if it turns out that there's an overbilled and there is not as much demand for it, someone's paying for it. And it's either it's going to be the customers or perhaps utility shareholders. I mean, you just the political risk of having mom and pop bail out, you know, Mark Zuckerberg, Jeff Bezos is just you can't have that happen. But again, six months ago, this was coming up on the tail end of conference calls. And now these utility CEOs are having in the prepared remarks. So I'm pretty confident they're going to figure it out. You mentioned blackstone just then. I do want to talk about who is currently making a lot of money from the data center build out. But just to stress test the thesis a little bit more because it is a contrarian take. And so I think we should ask a bunch of questions about it. But does it take into account time lags for projects? So I think, you know, capacity build out in the energy sector is notoriously bureaucratic. That is one thing that Joe and I do actually know about the sector. Is it possible that a lot of these committed projects actually take much longer to get working on the ground than currently forecast? I think the delays will be on building the new generation, not the data center. So data center takes two, three years, even if that slips to four, five years, the power plants take six, seven years. And as you know, you can't get a G even of a gas turbine for years and years, which is obviously a bullish backdrop here. Yeah, talk to us more about that element of it all because building out that if you overshoot on production, then that's a problem in itself. If you overshoot on production at a time when it's gotten really expensive because there's massive inflation in the construction sector, that's an even greater problem. Talk to us just about like per any given unit of productive capacity on the utility side, how much more expensive is it gotten and what are you forecasting for that? Sure. So to build a combined single gas plant 10 years ago is 1,200 to KW to build. Then it got to 2,000 and the utility analysts like myself is like, whoa, that's insane. Now we're up to 3,000 and it's like, who who's actually spending this? But that $3,000 KW for a new gas plant compares to the data center itself that cost $40,000. So for big tech to spend another three to lock in their gas price, it's their fuel source is like, it's nothing. Oh, yeah. It's a Minimus, which goes back to the output for power is 5560 and big tech's paying 95 in the grand scheme of things to the cost of data center. It's nothing. So that's why our utility analysts are just jaw dropping on how shocking it is big tech's willing to pay these amounts. What about if you don't measure production of new plants and dollars, but new plants in time? And again, if you're talking about, okay, well, if we can't get this turbine that is several years ago, we could have got delivered next month. How much longer are these projects taken? So if you configure this out, I think you're eluding this. If you figure this out, you can make a lot of money. Okay. Because obviously inflation reduction act had enormous. I'm going to vibe code. Yeah. I think I'll figure it out. Keep going. inflation reduction act, enormous tax credits for renewables. Yeah. And then the one big beautiful bill, obviously, clip those if you're not aligned by a certain date. So all this data center numbers are weighted towards the end of the decade, whereas the new solar is right here right now, crushing power prices. So you actually want to be a little short power for the next few years and then flip to being long. And if you can figure out when that flip is, you can make a lot of money in either the forward power curves or the natural gas curves. But as far as your original question, as I said, data centers, two, three years to build new power plants for five. But then you don't need as many new power plants as everyone's saying. So Constellation CEO said on a call the other days, he used the Texas market. He said 87 gigawatt peak market. You could add 10 gigawatts to Texas tomorrow, which would be the equivalent of sending every single Nvidia chip for an entire year to Texas and running them 24/7. That's 10 gigawatts. He was, you could run it right now, existing great, existing plants for all, but 40/50 hours a year. We stress tested it. There are some coal plants that can ramp up capacity factor. There's plenty of gas plants that can. So I don't know if it's 40 hours, 100 hours, 150 hours. But it makes more sense to pay someone else not to run their chemical company, the refinery company for 40/50 hours a year, rather than have the utilities go out and spend 10 billion dollars connecting far away wind farms. That's the argument. We're sort of coming in the middle of it. But there is plenty of existing capacity on the grid that could ramp up to meet it. And then if others guess to point it out on odd bots, the peak demand of the grid is 850 gigawatts. The overall size of the grid is are 1200 gigawatts. And then you're adding 50 gigawatts a year or solar. And then you're going to start adding 20 gigawatts of gas. I mean, we're going to handle it. I'm not really worried about any ground interest or anything. Oh yeah, talk to us about regional transmission. Because this is something that we hear a lot. It's not necessarily the power generation that's an issue here. It's the transmission, which the US seems to struggle with to put it mildly. So there's regional markets, MISO, Midwests, the Midcontinent ISO. These guys are tired the most amount of coal. So I think they're going to be in the worst shape and then Texas. And then it depends if anyone builds anything in New England. New England's got the far away, more expensive power prices, $70, the rest of the country's, you know, I am well aware. Yes, I have to because I live in Connecticut. So if anyone builds a data center in New England, they're going to be the tightest. But after that, it's really MISO. No one's building data centers in Vermont where they occasionally have to switch over the oil and wood, right? I mean, they ISO New England app, which we all have on our phone, right? They were getting 40% of their power from oil in cold snap the other day. It's tough to talk about New England power without talking politics. We're not going to go down that. So transmission is very important because you've got to connect all these far away renewables to the grid. You said something that I think is actually kind of important. There is this narrative meme, you know, people talking about the AI race, US versus China. And they're one of the things I've seen people say, China is going to win because they could just build out power more easily than we can. It sounds like, I know you're not an AI analyst, but sounds like from your perspective, we don't know like what it means or who's going to win US versus China. But then from your perspective, power is not going to be the decider here. Not in China, it's not. But it doesn't, you said like, you know, that we could ship every current with existing capacity. We could put every Nvidia chip in Texas today and we could run them for 50 hours for all the tips of a few really hot hours in the summer. I like the imagery of all the Nvidia chips going on a field trip to Texas. But it sounds like to your view, that really isn't going to be in from the US perspective that won't be the binding constraint. It's it's going to be a little tight, but I'm not one of these doomsayers. Oh, it's the absolute gating factor. It's all going to stop. I was in Shenzhen, China last year in a robot got in the one floor and the elevator went up and it got off another one and I was like, what is going on here? Hey there, Oddbots listeners. Right. The never ending question dive deeper, how companies make it big, what causes one company to succeed, why others fail. Lots of detail there, how it scaled the ups and downs and so much more. Yeah, and we actually we had them on Oddbots back in February last year. So we're a, I guess the same age in podcast years. Big year. Anyway, if you like OddLogs, the way we get into various market dynamics, how the economy actually works under the hood, you'll obviously appreciate and enjoy the acquired podcast. They do similar work, similar ideas, all focused on the context of individual company. There's another reason we wanted to talk to you aside from your capacity analysis, which is one of the interesting things that's been happening in the credit market is obviously private credit has been a big story for the past few years, but now private credit is getting in on the data center build out as well. They're sort of, I guess, getting on your turf a little bit in the public bond market, but what sort of activity have you seen there? Sure. So we think that's where the risk is going to happen. And frankly, Bloomberg news broke the story on PIMCO made $2 billion on day one, loaning to the meta data center in Louisiana. So they priced $25 billion in debt at 220 over treasuries and immediately started trading at 140 and handed PIMCO $2 billion. Great for PIMCO. But then everyone else applies to PIMCO. It's nice to be PIMCO. Especially the weather in Newport Beach. But everyone else in private credit is like, oh, these guys just made $2 billion. We need to start landing to data centers and we all know how this ends, covenants start falling, rates start falling. And again, if you're big tech, who cares if you overspend? Like you think AIs will be all end all you're going to overspend? It's when you get down to the second tier, the QTS is the advantages of the world. And then you get down to sort of the ones below that and you get like, you know, the core weaves and the nebbiuses of the world. And, you know, there's a lot of shorts going out on Equinix. And obviously your guest Jim Chanos is and it's all about the chips. I'm not going to get into the chip debate. But it's interesting. You look at a core weave and they got a $50 billion market cap. That's a real company. You're going to be around for a long time. But the bond market saying, we want a 10% yield to one new 2030 paper, you might not be a real company. And if you look at our supply demand outlooks, we're kind of in the camp of the bond market. But timing, which you mentioned earlier, Joe, is so key because this data centers, you're going to ramp for a couple of years and the oversupplies really a 2030 event. So good luck timing that one. You said something you talked about that PIMCO meta deal. And this question has come up and I still don't think it's got to totally satisfactory answer to it. Meta is a very highly rated company. As you see it as a credit analyst, what is it about the private credit? You know, they'll talk about Oh, it's flexible, etc. But you 220 spread over treasuries is not nothing at all. And is that re is that 220 spread really like worth it for like a little bit more flexibility, etc. Like what are they paying for exactly in the private credit market that they couldn't get cheaper? I would think in the public bond market. I don't know, but I could speculate. There's a couple of reasons. The matter of question is, why did you put this off balance sheet? Yeah. All right. So you've got the state of the art data center with the best NVIDIA chips out there. And you're a tech company and AI is the be all end all for everything. Did you kick it off your balance sheet? Because you didn't want to damage your balance sheet. But the agencies are imputing it. But maybe quant funds running their screens. They don't impute that. So maybe that helps. Or maybe you didn't want the depreciation running through your income statement. Maybe that helps. Or maybe you want to walk from this thing in five years. I don't know. But one of those is definitely the reasons because why else would you pay that much bigger spread? 150 Bips over their borrowing costs. But so the key thing is here, when you talk about that PIMCO meta deal, technically, this is not meta debt. It is not. Okay. This is right. Right. Okay. So they create a vehicle. They're not going to. Okay. That's a, I think that's an important element that they're not just arbitrarily paying a lot more for like a sort of that. And if you read the credit docs, they've guaranteed this debt. Yeah. Even if the data center shuts down, but our understanding of the docs is if they sell it, then the guarantee goes away. And so that would create a little risk. But back to my utility roots. Clear. What happens in a data center shuts down for rate payers. And they actually have an explicit guarantee from meta to protect rate payers. So they have that. A lot of other utilities don't. So a lot of states, Louisiana, Mississippi, Tennessee, Texas, they need to do better job protecting the rate payers. And by the way, that's just one line in the doc that could fall away in other new data centers. And that's what we spend our time looking at. You mentioned the credit ratings just then. So the rating agencies, they, they look at the off balance sheet vehicles, even though it's not officially part of the company's debt. They impute the lease payments. Okay. And include that as debt. I see. And for meta, specifically, they won't do that until the lease starts when it comes online, but everyone's doing it. And then I was just thinking, I don't mean to labor this analogy too much, but you know, you started out by talking about all the exciting moments in the history of being a utility analyst. And one of those was Enron, which I assume means, you know, you have some experience with circular deals. But what do you think about all the sort of incestuous financing deals that seem to be happening between all the various players in the data center industry? You mean we'll buy your equity so you can buy our chips. Yeah. Yeah. Again, I'm on the side of bondholders in that one. Just look at the market caps and look at the bond yields and explain what you mean by that for people who don't have a Bloomberg core. We've got people like me who have a Bloomberg but are too lazy. So these names are going out and yeah, in either open AI or NVIDIA is going out and buying equity in these neocloud companies. So then they can go out and either supply the compute to open AI and buy the chips from NVIDIA. So it's all very circular. And I think the example people used 20 years ago was Nortel was doing this called the vendor financing. So there's a little but a skepticism on that. Okay. So we can't do a utilities episode. I know we've been focused on data centers, but we can't do a utilities episode without mentioning nuclear power. What's it going to take to actually get, you know, some capacity from nuclear? Sure. So obviously the Vogel plant was the last big nuclear plant in the line of supposed to cost 14 billion and it ended up costing 32 billion and it came online 10 years late. No utility wants to take that risk. Now everyone's talking about these small modular reactors. And I think that's what you're going to start seeing is more talk of these. The only way we think a small modular actor goes final investment decision, FID, is if big tech agrees to do two things. They agreed to buy some SMRs and they invest equity in those SMR remaining factors to give them the cap X to build something they would do to be honest. For sure. And I think that's the only way you get one of these off the ground. And I think if those stocks rally on that deal, they're all shorts because they're already reflecting several of those deals happening. So the big ones are our new scale and an oak low and Sam Altman of open AI used to be the chairman of oak low and they stepped down so they could do a deal. So something along those lines would happen. That being said, Donald Trump has talked about doing work with Westinghouse and taking equity ownership to build another AP 1000. And obviously president Trump is all about taking equity. But none of the utilities in my coverage are going to build something without some sort of backstop. We did an episode recently with the infrastructure investor. And I'm a journalist. I look at the past. I don't talk about the future. But I was put on the spot. And I said, I think in the next 20 years, gone to my head, we will never have another vocal. We're not going to have another project like that in America. And sounds like you agree. I agree. I do think you see some SMRs. Frankly, our country's been making nuclear submarines for 67 years. That's an SMR right there. So I think that's the way it happens. This big tech goes in and does that, for sure. In 20 years, we'll have you back on to see whether or not both of you are right or wrong. I have no another about the future. This is my only one call. I just don't think we're going to forget that. We're not going to get a bunch of those things. I'm with you on that. And in 20 years, hopefully I can dial in from the beach or boat. See you in 20 years. No, probably before, because this was a fantastic conversation. Thanks for having me. Joe, that was a really fun conversation. That's super fun. I love that. My the opinion, reframing that I'm sort of coalescing around is that AI can be simultaneously underhyped and overvalued, right? And actually throughout history, that's kind of what we've seen with transformative technology, right? Like think about the internet bubble, the internet changed the world, but it was a bubble. Think about railroads, railroads, and the 1800s changed the world, but also a bubble. So I think that's kind of what I think. The key issue, which Andy and you both touched on is the timing, right? The timing. And yeah, I mean, I think it's it's very interesting because of course, his argument doesn't even, you know, doesn't even rest on any valuations right now. It's like, there is all of this expectation for build out. There is it, you know, as he put it, there is a number for the amount of the volume of data centered demand. There is an amount that's being built up. And it's like the second number looks bigger. And that's going to be a, that's going to be a problem. Yeah. And the time to your point, like it, I thought, you know, really interesting observation you had is a little bit not tangential to his core idea, but this idea that some of our energy policies are encouraging a lot of production right now, particularly the expiring solar credits. Yeah. At the same time, a lot of this demand is going to come online in the back end, et cetera. I do think, you know, seems like a really, it does, never really seems like a fun space. It's very far from when we were just talking about like utilities is, it's rate proxies, something for old people to get income. Well, the other thing I was thinking about on the demand side is I think there's a tendency among AI bulls, vie coders such as yourself to think that demand is just going to go one way, right? So there's going to be more demand for AI because I don't know, every piece of software is going to be replicated through cloud code or whatever. And so power demand is going to go up as well. But what we've seen so far is that these things are getting more and more efficient. They're definitely getting more and more efficient, like faster than anyone expected. Yeah. You know, this is a little bit tangential to the point, but I do think like one of the recurring phenomenons that we're seeing across this industry is that every, I mean, and this is, I guess it's a bull case, which is that, you know, even the optimists keep getting turned out to be too pessimistic. The pace of say, like efficiency gains for the cost of processing a token dropping faster than people expected. This morning, we're recording this January 28th, ASMR, the big chip equipment company way better than expected, the evils, the benchmarks for the models where it's like the optimists say, like maybe it could code at this level by 2027, turns out it hits there by like, you know, early 2026, etc. So like if you want to just make, I'm not making any case here, but if you just want to like make a bull case, it's like even the optimists keep getting surprised to the upside. On the other hand, it's fascinating to hear him say, look at what the markets are saying. They're not pricing in any of these expectations. And I was particularly surprised because I didn't realize this. They'd even like, you know, for all of the talk of LNG export terminals, etc. that gas is expected to be cheaper a few years. Yeah. Then it is right now. Very interesting dissonance between that and the popular narrative. Maybe gas traders just aren't vibe coders yet. Then they would understand exactly how much more of this compute we're going to do. Just from an energy perspective, though, there is a push and pull factor here, right? So on the one hand, everyone could use AI and demand goes up. But on the other hand, maybe it gets super, super efficient. And then demand goes down. I think that's that's the difficulty. Or it's just there is a number that's out there with like sort of like some reasonable inferences about where it's going to go. And it's very high. And it was actually very striking listening to him talk about some of those super the hyperscaler numbers. Because it's like, where's it at up, right? Like as he pointed out, okay, chat GPT, like came out two gigawatts, etc. Like there are a ton of chat GPT's out there, right? And that's one of the most computationally intensive things. Like, maybe there are reasons to think this is all going to go great. There's going to be a ton of money made in AI. But you can't really just like get to the number. I don't know. I think he was a this was a very useful perspective just sort of on some of the simple math. And the math sounds like it's subtraction. Like this sounds like what my son is learning about. Well, the other thing I thought was really interesting was the response to your question about why would you finance these things off balance sheet if you're, you know, this massive cash rich technology giant. And the suggestion there was, well, maybe at some point in the future, like five years down the line, you need to get rid of this liability. You don't want to deal with it. This is why we did that episode with the guy who has, you know, the company doing the legal docs, right, etc. This is why it's pretty crucial to understand some of these things because some of the questions sound like Facebook's or meta's option to walk away, right? There's some call option implicitly to walk away, etc. And they they how they what they could do what scenarios and what they would allow it to be due is obviously going to be pretty crucial for any investors in this off balance sheet paper. I did not know until you asked this whole idea that the ratings agency is while they don't look at his debt, they do them back out at least cost. And therefore it can inform their overall credit sustainability. Well, the other thing, you know, we touched on this, but there's more and more demand from investors for data center debt, right? Like the space is getting more for some reason. The space is getting more competitive. And so naturally, what you see in any other credit cycle throughout history is as demand grows and people are competing for deals, the documentation and the protections tend to diminish. You know, I find the existence of hype cycles for debt to be a little bit weird because I get like, oh, I really want to get into AI equity, right? Because that could 100 X next year, right? And it's like, oh, I'm really excited about getting into data center debt because it might pay me 50 bips more. I find to be very strange or 100 bips more. It's like, if I have a fixed look, I'm a simple, a simple guy. But if I have a fixed income allocation, all I care about is minimizing downside. And I don't really care like what sector it is. I'm not participating in the upside. You're not going to get greedy. You're not going to get rich. Yeah, I get to get super rich. I'm like, I just don't want to lose my like for a fixed income. I just don't want to lose my money. Fair enough. All right. Shall we leave it there? Let's leave it there. This has been another episode of the AdLots podcast. I'm Tracy Alleyway. You can follow me at Tracy Alleyway. And I'm Joe Wyzenthal. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez at Carmen Armond Dash. She'll been it at Dashbot and Killbrooks at Killbrooks. Now for more AdLots content, go to bloomberg.com/adLots for the daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our discord discord gg/adLots. And if you enjoy AdLots, if you like it, when we talk about the data center build out, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely add free. All you need to do is find the Bloomberg channel on Apple podcasts and follow the instructions there. Thanks for listening. [Music]