00:00 Speaker A
We’ve got Oracle reporting later this week and that’s one of the, on the hyperscaler level, the the riskiest of the the bond issuers, I think, maybe along with uh with SpaceX. So, if you are a bond investor or if you’re an equity investor, what do you want to be paying attention to in that Oracle report from a borrowing perspective?
00:27 Speaker B
Yeah, you make a good point. We like to differentiate between some of these hyperscalers that they’re sort of this Mount Rushmore of corporate credit, you know, Alphabet, Amazon, Microsoft.
00:43 Speaker B
Um and then there’s those triple B issuers like the SpaceXs and Oracles that one don’t have the type of cash flows that can support nearly as much debt. um nor do they have um the track records um to support such high levels of debt.
01:03 Speaker B
And you know, once you start stepping into triple B land, people worry about falling to junk and then not having access to capital. So, um those names do provide a lot more risk, but they also provide tremendous amounts of incremental spread carry, um which I think um are paying investors enough to move down the credit curve.
01:31 Speaker B
A name like Oracle for for instance, what we’re really looking for is what their planned spending is going to be and how much um they need to borrow to finance it. They’ve actually committed to not issuing any more debt uh for the rest of this year, at least in the in the high-grade markets. There’s alternative markets that they can go to.
01:54 Speaker B
And but what we really also want to see is if they’re going to raise their capex budget. All we’ve seen so far across all of these hyperscalers are capex budgets soaring. and when you do that and you have negative cash flow, even the the Mount Rushmores have negative free cash flow now, it means you need to borrow more.
02:16 Speaker B
And I think pushing the balance sheets further for names like an Oracle is that much more difficult to do. So, I think as long as Oracle sticks to their plan, doesn’t raise CAPEX beyond this sort of 70 billion dollar number. Um I think they’re they’re probably set to rally and we’re also actually looking for AI monetization. We’ve seen that um through second quarter earnings for everybody else where for the first time we’re really seeing these companies start to make money and a lot of money um selling AI and not just cloud services.
02:54 Speaker B
So progress on AI monetization is also critical. Um but more so for an Oracle than for others, how they’re managing their their capital plans, they don’t have an unlimited resource um uh to access. They can’t just go out and borrow 100, 200, 300 billion dollars of debt like these other players can. Um so it’s going to be a a a more watchful eye and and I’m sure you know, we’ve probably mentioned many times on your show, if you look at CDS levels for Oracle, they’re they’re north of 200 now.
03:31 Speaker B
And I think people a lot of people are using them as a hedging vehicle that if something does go wrong, they’re the first ones that might fall. I actually think that’s way overstated. Um you can even look at names like Nvidia that’s trading near 100 in CDS, makes absolutely no sense relative to fundamentals, but those are the things I think people will be focusing on the most.
