Stonepeak's Dorrell on AI, Data Centers, Infrastructure

[00:00:01] Speaker 1: META AND MICROSOFT REPORTING AFTER THE BELL TO GIVE INVESTORS MORE INSIGHT INTO SPENDING FOR HYPER SCALER. IN THE MEANTIME CAPEX ON INFRASTRUCTURE AND AI-RELATED INFRASTRUCTURE IS EXPECTED TO SOAR. MACKENZIE ESTIMATES THAT DATA CENTER INVESTMENTS WILL REACH $5.2 TRILLION BY 2030. IN THE MIDDLE OF THAT TREND SITS STONE PEAK WITH ABOUT $90 BILLION IN AUM MAKING IT THE LARGEST INDEPENDENT PUREPLAY INFRASTRUCTURE. WE WILL TAKE A LOOK AT THE BIG PICTURE. [00:00:37] Speaker ?: THANK YOU FOR JOINING. [00:00:37] Speaker 1: STONE PEAK IS INTERESTING BECAUSE YOU HAVE THIS HUGE DIGITAL INFRASTRUCTURE BUSINESS BUT YOU ALSO HAVE ENERGY AND TRANSPORT TOO. I WONDER HOW HAS THE BUSINESS MIX BEEN SHIFTING WITH THIS MEGA TREND? WHAT IS THE DIVIDE BETWEEN WHAT YOU ARE DOING IN THE NEW WORLD [00:00:50] Speaker 2: OF DIGITAL INFRASTRUCTURE AND THE MORE TRADITIONAL PUREPLAY INFRASTRUCTURE? FOR YEARS AND YEARS WE HAVE HAD A BIG EMPHASIS ON CREATING DIGITAL AND WHAT WE FOUND OVER THE LAST YEAR OR SO IS THOSE HUGE BUSINESSES ARE NOW COMING TOGETHER. WHAT I MEAN BY THAT IS ALL OUR SKILLSET IN POWER AND GOING AND GETTING ON THE GRID AND DEVELOPING POWER, ALL OF A SUDDEN ALL THE TECH PLAYERS WANT THAT. SO THOSE TWO INDUSTRIES AND SKILLSETS ARE REALLY COMING TOGETHER. [00:01:16] Speaker 1: SO IT'S HELPFUL THAT YOU ARE ALREADY THERE BEFORE THIS EVEN EMERGED. BUT I WONDER WITH SO MUCH CAPITAL RUSHING INTO THIS WORLD, WHETHER IT BE ENERGY OR AI DATA CENTERS, WHAT DOES THE REST OF THE OUTLAY LOOK LIKE? CAN YOU FIND THINGS AT A BARGAIN BECAUSE CAPITAL IS CROWDING INTO PLACES THAT AREN'T THE TRADITIONAL INFRASTRUCTURE TYPE PROJECTS? [00:01:35] Speaker 2: IN SHORT, YES. BUT IT'S NOT LOST ON US THAT THE MARKET IS AT ALMOST HISTORICAL HIGHS AT THE MOMENT. YOU HAVE TO GO ALL THE WAY BACK TO THE DOT COM ERROR TO HAVE ANYTHING COMPARABLE TO TODAY. SO THAT'S NOT LOST ON US. BUT TO GO AND BUILD THESE DATA CENTERS AND TO GET ACCESS TO THE POWER AND ALL THE PERMITTING, THAT IS SUCH A UNIQUE SKILLSET. FOR THOSE OUT THERE THAT HAVE THAT PARTICULAR SKILLSET AND CAN BUILD THESE DATA CENTERS AND BUILD THIS POWER, I THINK IT'S A REALLY UNIQUE MOMENT IN TIME. AND OF COURSE, YOU GO AND GET LONG-TERM OFFTAKE CONTRACTS WITH THE GOOGLE AND MICROSOFT, I DON'T WANT TO MAKE A BET ON WHETHER THESE VALUATIONS ARE GOING TO LAST LONG-TERM. BUT I'M VERY HAPPY TO MAKE A BET THAT GOOGLE IS GOING TO BE A SURVIVOR AND META IS GOING TO BE A SURVIVOR. THAT'S A BET I'M VERY HAPPY TO MAKE. [00:02:22] Speaker 1: DOES THE FACT THAT WE HAVE THESE LONG-TERM CONTRACTS MEAN THAT THIS TIME IS DIFFERENT? WHEN THE ALARM BELLS GO OFF IN YOUR HEAD AND YOU SAY I HAVEN'T SEEN THIS SINCE THE DOT COM BUBBLE, KIND OF ASSUAGE FEARS? OR DO YOU THINK STILL THIS MARKET IS WAY TOO FROTHY AND MAYBE ASIDE, PUTTING THE LONG-TERM CONTRACTS ASIDE, THERE NEEDS TO BE SOME SORT OF RECKONING OR CORRECTION? A LITTLE BIT OF BOTH. [00:02:40] Speaker 2: THERE'S A LOT OF SIMILARITIES FOR SURE BETWEEN DOT COM AND TODAY. IT'S A BUNCH OF HUGE MEGA FIRMS JOKIEING FOR POSITION. SO THERE'S GOING TO BE WINNERS OUT OF THAT. WE'RE GOING TO LOOK BACK AND SAY THE WINNERS WERE UNBELIEVABLE BETS TODAY. THERE'S GOING TO BE A BUNCH OF LOSERS AS WELL. BUT WHERE IT DIFFERES FROM THE DOT COM ERROR FROM AN INFRASTRUCTURE STANDPOINT IS DATA CENTERS WITH LONG-TERM CONTRACTS ARE NIGHT AND DAY DIFFERENT FROM FIBER BACK IN THE DOT COM ERROR BECAUSE THEY'RE THE TWO BIG INFRASTRUCTURE BETS OF THE TIME. SO I DO MAKE A BIG DISTINCTION BETWEEN THOSE TWO CATEGORIES. [00:03:13] Speaker 1: ONE OF THE THINGS THAT, AGAIN, HAS ECHOES OF THE FINANCIAL -- OR THE DOT COM BUBBLE IS THE CIRCULAR FINANCING ALL OF IT. IT WAS A DISCUSSION WE HAD TO START THE YEAR. IT SEEMED LIKE IT GOT QUIET. THEN IT STARTS UP AGAIN WITH US LEARNING TO START THE WEEK THAT NVIDIA IS DISCUSSING A $250 BILLION BACKSTOP FOR OPEN AI IN ONE OF THEIR DATA CENTERS. DOES THAT CONCERN YOU, JUST HOW RELIANT CUSTOMERS AND SUPPLIERS SEEM TO BE ON EACH OTHER? [00:03:35] Speaker 2: IT DOESN'T CONCERN ME, BUT YOU HAVE TO TAKE IT INTO ACCOUNT. SO THERE'S NOTHING NEFARIOUS GOING ON. WHAT'S HAPPENING HERE IS YOU'VE GOT FIVE OR SIX OF THE BIGGEST COMPANIES IN THE HISTORY OF THE WORLD WHO ARE ALL FIGHTING FOR RELATIVE PRICING POWER OR BARGAINING POWER AMONGST EACH OTHER. SO NVIDIA DOESN'T WANT TO BE BEHOLDEN TO JUST GOOGLE AND MICROSOFT AND AWS BUYING ITS CHIPS. SO IT'S TRYING TO FUND ALL THESE OTHER PARTIES WHO CAN BE CUSTOMERS OF NVIDIA. SO FOR SURE, IF YOU'RE AN INVIDIA INVESTOR, YOU WANT TO BE VERY AWARE THAT SOME OF THESE REVENUES COMING BACK TO INVIDIA ARE CIRCULAR. BUT AT THE SAME TIME, I THINK, AGAIN, IF YOU'RE AN INVIDIA INVESTOR, YOU WANT THEM GOING AND CREATING A BIGGER MARKETPLACE FOR THEMSELVES. SO NVIDIA IS DOING IT IN A VERY, VERY LOGICAL FASHION. BUT IT DOES MEAN YOU'VE GOT THE CIRCULARITY GOING ON. [00:04:22] Speaker 1: SO IF YOU ARE TO LOOK AT THE AREAS THAT ARE LESS SAFE, THAT DO LOOK A LITTLE BIT BUBBLEY, THAT DO LOOK A LITTLE FROTHY, WHAT ARE SORT OF THE CHARACTERISTICS OF THINGS YOU'D LOOK OUT FOR? [00:04:29] Speaker 2: THE THING THAT REALLY FOCUSES MY ATTENTION IS THE NEED FOR CAPITAL AT THE MOMENT, AND THERE ARE CERTAIN COMPANIES THAT ARE CASH FLOW POSITIVE, ALTHOUGH THERE'S FEWER AND FEWER OF THOSE. [00:04:41] Speaker 1: ALPHABET THOUGH, CASH FLOW NEGATIVE FOR THE FIRST TIME. [00:04:45] Speaker 2: YOU'RE RIGHT, BUT IF GOOGLE WANTED TO GET CASH FLOW POSITIVE NEXT YEAR, IT COULD DO IT VERY, VERY EASY. SO THOSE FOLKS, I'M NOT SAYING THERE WON'T BE ROUGH ROADS AHEAD AT SOME POINT POTENTIALLY, BUT THEY'RE GOING TO BE FINE. THE FOLKS YOU WOULD WORRY ABOUT ARE THOSE WHO REALLY DON'T HAVE INTERNALLY GENERATED CASH FLOWS. AND THAT'S OBVIOUSLY THE BIG AI LABS TODAY. AND THAT'S WHERE, YOU KNOW, IF YOU'RE BETTING ON THOSE, YOU KIND OF LIKE THEY'VE GOT THIS BIG BROTHER IN THE SENSE OF INVIDIA TO COME AND LOOK AFTER THEM. BECAUSE INVIDIA DOES NOT WANT THOSE GUYS TO FALL OVER. BUT MY BIG CONCERN WOULD BE AS AN INVESTOR, IF THE CAPITAL MARKETS SHOT OFF -- BECAUSE THIS IS WHAT WILL END IT. THE CAPITAL MARKETS WILL SHUT OFF. THOSE WHO NEED CAPITAL BUT CAN'T GET IT, WHAT ARE THEY GOING TO DO? THEY'RE IN SOME DIFFICULTY. THOSE WHO HAVE GOT INTERNALLY GENERATED CAPITAL OR JUST FORGED [00:05:30] Speaker 1: FURTHER AND FURTHER AHEAD. ARE WE STARTING TO SEE THE BEGINNING SIGNS OF THAT? SPREADS HAVE STARTED TO WIDEN IN PUBLIC DEBT MARKETS FOR THESE BIG TECH PLAYERS. [00:05:38] Speaker 2: DO YOU SEE FINALLY SOME PRESSBACKS AND PUSHBACK FROM THIS MARKET ON THE FINANCING SIDE? I THINK THE MARKETS HAVE GONE OUT A LITTLE BIT. CERTAINLY THE MARKET IS LOOKING AT ALL THIS CAPEX SPEND. YOU DON'T NEED TO BE THAT BRIGHT OF A FINANCE PERSON TO SEE THAT THIS CAN'T GO ON THE WAY IT'S GOING ON FOREVER. I DON'T AT THE MOMENT. CAPEX PLANS THIS YEAR, I HEARD YOU MENTIONED EARLIER, CLOSE TO THREE QUARTERS OF A TRILLION. NEXT YEAR, OVER A TRILLION DOLLARS. I DON'T SEE A PULLBACK CURRENTLY. I WOULD BE WATCHING PRETTY CLOSELY. [00:06:06] Speaker 1: THERE IS ALWAYS A POLITICAL ELEMENT TO IT AND INFRASTRUCTURE TO SOME DEGREE ALWAYS IS. THERE HAVE BEEN STATES THAT HAVE BEEN TRYING TO ENFORCE MORATORIUM. NEW YORK, ONE OF THE FIRST SUCCESSFUL ONES. LOOKING AT THE LIST, MAINE, VERMONT, OKLAHOMA, MARYLAND, VIRGINIA, GEORGIA, THAT DON'T WANT DATA CENTERS, SOME NIMBYISM. WHAT HAPPENS IF MORE STATES ARE SUCCESSFUL? DOES IT COMPLICATE THE PROJECTS YOU ARE TRYING TO UNDERGO? [00:06:30] Speaker 2: IT COMPLICATES, IF IT KEPT GOING THE WAY IT'S GOING. NEW YORK IS THE ONLY STATE TO ANNOUNCE THE MORATORIUM TODAY. LAST TIME WE WERE HERE, WHICH WAS MAYBE THREE OR FOUR OR FIVE MONTHS AGO, WE SPOKE ABOUT THE LIKELIHOOD OF POLITICS BECOMING AN ISSUE OVER TIME. IT WASN'T EVEN MENTIONED WHEN WE WERE TALKING. NOW IT'S TOPIC DE JOUR, REALLY. WHAT WE'RE SEEING IS PEOPLE DON'T LIKE POWER PRICES GOING UP. BUT I ALSO THINK THERE'S A HUGE, FRANKLY, JUST SOCIAL CONCERN OF WHAT'S A.I. GOING TO DO TO MY LIFE AND MY JOB. AND IF YOU GO AND TALK TO POLITICIANS AROUND THE COUNTRY, ALL OF THEM ARE BEING ADVISED TO BE ANTI DATA CENTER AT THE MOMENT. ON THE OTHER SIDE OF THAT, YOU GO AND LOOK AT THE GEOPOLITICS OF THE A.I. COMPETITION WITH CHINA, THERE'S NO WAY THE U.S. WANTS TO FALL BEHIND. YOU'VE GOT TWO VERY FAST APPROACHING TRAINS JUST ABOUT TO COLLIDE INTO EACH OTHER. SO I DON'T THINK THE NEW YORK THING ALONE IS A BIG DEAL. THERE'S NOT A WHOLE LOT OF BIG DATA CENTERS IN NEW YORK. IT'S A ONE-YEAR MORATORIUM. BUT IF PENNSYLVANIA BANN IT OR IF A VIRGINIA BANN IT OR A HIGHER BANN IT OR TEXAS BANN IT, THEN YOU WOULD SEE SOME REPERCUSSIONS. [00:07:35] Speaker 1: I JUST GOT TO ASK YOU WHILE WE'RE ON THE TOPIC OF POLITICS. AND AGAIN, A LOT OF INFRASTRUCTURE DOES END TO BE POLITICAL. I KNOW CHICAGO IS PUSHING BACK THE CITY COUNCIL ON ONE OF THE INVESTMENTS YOU WANT TO MAKE BECAUSE THEY'RE CONCERNED AROUND ONE OF YOUR HOLDINGS, OMNI AIR, WHICH IS INVOLVED IN A LOT BUT DOES HAVE A LITTLE BIT OF EXPOSURE TO ICE DEPORTATION DEPORTATION FLIGHTS. EXECUTIVES HAVE TALKED ABOUT SELLING THAT PARTICULAR PORTCO. ARE YOU SELLING IT? WHAT ARE SORT OF THOSE DISCUSSIONS LOOKING LIKE? [00:07:59] Speaker 2: OUR PLAN WAS ALWAYS TO SELL OMNI. WE BOUGHT A COMPANY CALLED ATSG, HUGE. IT'S THE BIGGEST DOMESTIC CARGO COMPANY IN THE U.S. WE LOVE IT. IT'S BEEN A GREAT INVESTMENT. WE ALWAYS PLAN TO GET RID OF OMNI. I DON'T WANT TO GET INVOLVED IN POLITICS. IT'S NOTHING TO DO WITH THAT. [00:08:16] Speaker 1: IT WAS ALWAYS THE PLAN TO SELL OUR SELF. WE WANT TO GET INVOLVED IN THE U.S. IT'S NOTHING TO GET INVOLVED IN THE U.S. BEFORE I LET YOU GO, AS I MENTIONED TO START THIS, YOU ARE ONE OF THE LAST BIG INFRASTRUCTURE PLAYERS. EVERYONE ELSE IS GETTING BOUGHT UP, WHETHER IT BE G.I.P. AND BLACKROCK OR SOFTBANK BUYING DIGITAL BRIDGE. [00:08:38] Speaker 2: HOW OFTEN IS YOUR PHONE RINGING, MIKE, WITH PEOPLE SAYING, NICE BUSINESS YOU GOT THERE, WOULD YOU LIKE TO COME JOIN US? [00:08:42] Speaker 1: WE'RE NOT SELLING THE FIRM. NO PLANS TO EVEN THOUGH -- WOULD YOU EVER BUY ANYONE THEN? [00:08:52] Speaker 2: THAT WOULD EXPAND BEYOND INFRASTRUCTURE? WE'LL SEE WHERE IT GOES. WE'VE GOT A LOT OF CASH ON BALANCE SHEET. IT'S A FROTHY MARKET TODAY. WE NEED THE MARKET TO TONE DOWN A LITTLE BIT. [00:09:03] Speaker 1: I THINK IF YOU'RE CASHED UP AND THE MARKET TONE DOWN, YOU GO AND SPEND THAT MONEY SOMEHOW OR OTHER.