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

Episode Date: February 2, 2026

Utilities analysts are having a moment as the energy sector gets a boost from AI. With an extra 94 gigawatts forecast to be needed by 2030 to power all these new data centers, energy investment has become a hot play as investors take a "picks and shovels" approach. But one long-time analyst says that — from a utilities perspective — we're already set to overbuild capacity by twice as much as is needed. On this episode, Andy DeVries, co-head of investment grade credit and head of utilities and power at CreditSights, talks to us about the math behind his infrastructure overbuild analysis, who has been making money (so far) from the data center boom, and what we already see playing out in the credit markets. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Bloomberg Audio Studios, Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, imagine you are a utilities analyst. Yeah, fun. And for years, you are laboring in the utility analysis minds. And, you know, we like talking about utilities.

We like talking about energy. We find pretty much anything interesting. That's right. Equal opportunity interest people, we are. But you've 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 you were a 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. They were seeing as sort of bond-like instruments, et cetera, maybe a little bit of growth, but roughly bond. Reliable, safe haven-hish dividend plays, I guess. Totally. And since I know where 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 you. utilities analyst, but, you know, 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 and learn modeling skills and all kinds of stuff. And then you get allocated. and someone gets allocated to, 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 of amazing timing and luck. And so it's like journalism in the air sign. Yeah, that's right. 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 contrarian take on the data center buildout and how much energy is actually required. We've been hearing a lot from people who are very, very bullish on the data center buildout. So this will be a useful counter 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 Saul, wrote an article about how much it's changed for being a utilities analyst now the data centers are here. But to push back, we did have the largest bankruptcy of all time in Enron, 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 packass bankruptcy and then went to the second and here we are with data centers. It's 25 years. Wow. So you really have seen it all. It is fair to say. So you're absolutely right. There have been some disasters and home runs and utilities, you know, they do get central in the news, obviously with the fires that we saw, for example, in California several years ago. And the court trial is about L. 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 sort of like talk to us about what a normal day is like and when you're thinking about utility. Before, you know, pre-data centers? Yeah, pre-data centers five years ago, whatever. Pre-data centers are you 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. Yeah, right. And then on the federal level, you obviously have the renewables displacing coal. And that's, you know, obviously I have a big impact now. So 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 aspy about the way like you talk to people in the space and you're

like, well, how does 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 EI in November. And it was packed. I was standing remrolling for some of these presentations. Wow. Your competitors at CNBC were broadcasting from the floor. Is that the first time that happened? Probably a sign of a top. So yeah, people are very happy.

And it just to quantify it. Utilities have generally grown around 4, 5, 6% a year. And then that's moved to 5% to 7% a year. and now certain names, which we'll talk about later, are up to 8% 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, et cetera. 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 into 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're playing dividends. You can find higher yields and other fixed income instruments. Yeah, right. 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 the stock, I mean,

the X-LU has done well. It's gone down. 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. It's just zoom out. And you've gotten the, 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 coupon plus. I mean, it worked out. The Fed went 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 jacking up rates, chat TPT 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 buildout.

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 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 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're all over the place. They come from sell-side banks. They come from consultants. They come from everyone. BNEF has one. They're, I think, one of the best out there.

Thank you. We use them a lot. So that's on the demand side of where you're going to come out on these. Then you look at the supply, and everyone talks about the demand, right? Oh, yeah. 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 a utility analyst? You were making fun of us before.

But if you look at this, you're pitying you. We're pitying you. But we realize our pity was misplaced, but we were not making fun. Anyway, keep going to go out. So you look at the supply, and these utilities are tracking all these data centers connecting to the grid because they've got to do a lot of work. Spend a lot of money in transmission, distribution, new substations, transformers. it's a lot of work. But it boosts their 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, kudos to the utilities. They break out what's firm, committed, signed, 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, around 140 gigawatts. Now, you've got a PUE adjust that. So when you connect a data center... What's PUE? Yeah, when you connect a 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, right? What's the point of splitting it out? I'm not splitting 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.

And what does PUE stand for? Power usage effectiveness or power usage efficiency. So they're at 140. So that PUE is down to 110 on apples to apples. So just to go back, you only need 50 on the demand side between now in 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 we're in the same page, third party estimates, 45 gigawatts for

data centers now going to 95s. That's 50. Utilities are working on 110. They don't give timing for that. Some of it's going to be past 2030. What 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 the issue there. And then it might be worth pausing that and just saying how we're tracking these things. Yeah. So what we do for the demand side is we use the original AI agent. You know what that is? A Gmail alert. Oh, yeah. They're the best. So 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 on utility calls. Just yesterday, Nextera, moved another two gigawatts from the potential into the committed. And these utilities are chomping 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 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 demand estimates. Texas is a

walled off market, as you guys know, 87 gigawatt peak market. That is the one thing I know about energy. 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 Encar, 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. The entire market is wrong. the benefit of your users, you cannot trade forward power in Texas on interactive brokers. I know that half your audience. That's too bad. Everyone's like looking up there.

That's what I did. This is great. And this gives us a bunch of technical questions to get into. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews. the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. That on Sundays, we speak with journalists, columnists, and key political

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It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or 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 and 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, you know, 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 into curves for like, is there trading happening at the 2030, 10? 30 might not be so liquid, but 27 and 28 certainly are.

But there is an other energy market. So if you look at Nat 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 6 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 broker's account. So that goes into is there going to be a glut of LNG. It starts getting outside of the expertise. But that's what 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 power curve. But since we are on LNG and then we can get back to the part. curve. Just setting aside data centers, et cetera, intuitively you would think that what is a growth

business in the United States, LNG exports? And in fact, one of this 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 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 B, 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 unacceptable to the rest of the world. That could be a driver. Then they would have to rebuild that pipeline. Yeah. 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 Schmoe startup. 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 on their earnings call as well. You know, that's real demand. That is coming. It's, it's material. I'm sorry. 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 curve.

We don't get the volume, but it's a yearly curve. And then right before the year starts, it's supposed to 12-month curves. And then it goes into weekly before. What I'm saying is how do you infer what expected volume in 2028 is going 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 demand, then you'd expect it to go up several dollars.

And the natural gas side, I'd want to see 40 cents, 50 cents. I see what you're saying. Something like that. And then just to go back to the fork, of your upper 50s in Texas, low 60s for peak, and the data center companies are paying 95. So Vistra just did a deal off. $95 what? $9.5 a megawatt hour for around the clock.

So Vistra contracted out as Comanchee 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. Yes. The 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 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. how could they change over time? Moderate confidence, but like look where we're at now. OpenAI built all the chatGBT BT using two gigawatts. All the big tech hyperscalers, they haven't given their 2025 volumes yet,

but if you take their 2024 and then double it, and this is output, so I'm going to transfer it back to capacity and you assume a 60% capacity factor, all the hypers combined around 15 gigawatts. And that's got to be over half the data center demand. So to talk about 95 gigawatts, I mean, it's a super. staggering number. And then you get more advances in, you know, Navidia chip efficiency. 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 comparisons. A 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 and 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 gigawatts bigger than a kilowatt. Like, what this actually means? And then the fact that even there, we're talking about the difference between a gigawatt and a gigawatt hour.

And, like, I've yet to develop the sort of intuitions that I haven't. Haven't you seen back to the future? Yeah. 1.1 gigawatts? Oh, there you go. We got to print out, you know, a little table. Yeah, I need a little cheat. Like the way we used to do for credit ratings in a financial crisis, we need that up there.

And actually, credit ratings are going to be interesting from a utility's perspective as well. Can I just ask, you know, obviously one of the sensitivities in general with all the things data center and utilities is 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 isn't so clear. And also from what I understand, the emergency. of a data center can actually lower a consumer's electricity bill because there's just that simple math, which is if there's more buyers splitting the cost of the buildout, 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's very excited to build it out, and that criteria, and you have to buy transformers and gear and all this stuff, if the demand does not materialize 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 said, we're going to put in a solution where

rate payers are absolutely protected and get money back. So you look at nice or which is 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 to ratepayers.

So rather than have a debate, oh, who's funding what? It's like, done and you get $67 million a year. And that's the blueprint. That's the gold standard. Yeah. Now keep in mind, Six months before that Genco was launched,

nicer 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 northeast of 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, Pacific Gas Electric. They've done a deal where they've got rates in place that protect presidential rate payers. Amerin 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 overbill and there is not as much demand for it, someone's paying for it.

And 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 their 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 buildout. 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 buildout 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 a data center takes two, three years, even if that slips to four or five years,

the power plants take six, seven years. And as you know, you can't get a G-Rnova 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, 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 has it gotten? And what are you forecasting

for that? Sure. So to build a combined single gas plant 10 years ago is 1,200, 1,200 a KW to build. Then it got to 2,000. And utility analysts like myself, like, whoa, that's, zes. saying, now we're up to 3,000, and it's like, who's actually spending this? But that $3,000 a 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 prices, or their fuel source, it's like, it's nothing. Oh, yeah, yeah. It's de minimis, which goes back to the output, forward power is 55, 60, and Big tech's paying 95. In the grand scheme of things, so the cost of the data center, it's nothing. So that's why our suitility analysts are just jaw dropping on how shocking it is, big techs 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, 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 can figure 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 a thing to figure it out. Keep going. An 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 set of 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 four, 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 day. He said 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 Navidia chip for an entire year to Texas.

Texas and running them 24-7. That's 10 gigawatts. Because you can run it right now, existing grid, existing plants for all but 40, 50 hours a year. We stress tested it. There are some coal plants that can't 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, their refinery company for 40, 50 hours a year rather than have the utilities go out spend $10 billion connecting far-away wind farms. That's the argument. We're sort of come in the middle of it,

but there is plenty of existing capacity on the grid that could ramp up to meet it. And then of others, guests have pointed out on oddlots, you know, the peak demand of the grid is 850 gigawatts. The overall size of the grid is 1,200 gigawatts. And then you're adding 50 gigawatts a year of 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 around-hounds. 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 U.S. seems to struggle with, to put it mildly. So there's regional markets. MISO, Midwest, the mid-continent 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 bills anything in New England? New England's got the far away most expensive power prices. $70 the rest of the country's, you know, I am well aware. Yes. I have too 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. And no one's building data centers in Vermont where they occasionally have to switch over to oil and wood, right? I mean, the ISO New England app, which we all have on our phone, right? They were getting 40% of their power from oil. Yeah, yeah. In the cold snap the other day. But I think it's tough to talk about New England. England power without talking politics, and we're not going to go down that happen. So, anyway, 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 talk about the AI race, US versus China. And 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 en list, but sounds like from your perspective, We don't know like what it means or who's going to win U.S. 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 exception of a few really hot hours in the summer. Yes. 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, from the U.S. perspective, that won't be the binding constraint. 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, and a robot got in one floor and the elevator went up, and it got off another one. And I was going on here. This is Caroline Hyde. And I'm Ed Ludlow inviting you to join us for Bloomberg Tech, a daily podcast

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Join us every afternoon on your kids. commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen and in season two of Leading By Example,

we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike but also really acknowledge where you don't. and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts. 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 buildout 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. Pimpco made $2 billion on day one loaning to the Meta Data Center in Louisiana. So they priced $25 billion debt at $220 over treasuries.

and it immediately started trading at 140 and handed Pimco 2 billion. Great for Pimco, but then everyone else... It's nice to be Pimco, isn't it? 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 lending 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 AI is the B, I'll end all, you're going to overspend. It's when you get down to the second tier, the QTSs is the advantages of the world,

And then you get down to sort of the ones below that. And you get like the core weaves and the nebiuses of the world. And, you know, there's a lot of shorts going out on Equinix. And obviously, your guest, Jim Chanos, 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's saying we want a 10% yield to lend you 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 the data center is going to ramp for a couple of years and the oversupply is 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 got a 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, et cetera. But you're 220 spread over treasuries is not nothing at all. And is that 220 spread really like worth it for like a little bit more flexibility, et cetera? 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.

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 Navidia 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 bibs 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. It's awesome. 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. No.

That's their debt. Yeah. And if you read the credit docs, they've guaranteed this debt. Yeah. Even at 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 routes. Please. What happens to the 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 their ratepayers. And by the way, that's just one line in the dock 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 look at the off-balance sheet vehicles, even though it's not officially part of the company's debt. They impute the lease payments 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 utilities 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. Again, I'm on the side of bondholders in that one. Just look at the market caps and look at the bond yields. Explain what you mean by that for people who don't have a Bloomberg.

CoreWeave goes up. People like me who have a Bloomberg but are too lazy. So these names are going out and either OpenAI or Navidia is going out and buying equity in these neocloud companies. So then they can go out and either supply the compute to OpenAI and buy the chips from Navidia. So it's all very circular. And I think the example people used 20 years ago is Nortel was doing this all the vendor financing. So there's a little bit of 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 came online. It was supposed to cost $14 billion. It ended up costing $32 billion. 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 agree to buy some SMRs and they invest equity in those SMR manufacturers to give them the CAP-X to build them. Which sounds like 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 new scale and OKlo. And Sam Altman of OpenAI used to be the chairman of Oaklo. then he 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 an infrastructure investor. And I, you know, 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 of the next 20 years, gun to my head, we will never have another Vogel. We're not going to have another project like that in America. And it sounds like you agree. I agree. I do think you see some SMRs. I mean, 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, as big tech goes in and does that for sure.

In 20 years, we'll have you back on to see whether or not, well, both of you right or wrong. This is my only product. I don't know nothing about the future. This is my only one call is I just don't think we're going to ever get them. Right. 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 a boat.

See you in 20 years then. No, probably before because this was a fantastic conversation. Yeah, this is great. Thank you so much for coming on all thoughts. Thanks for having me. Joe, that was a really fun conversation. That's super fun. I love that.

The opinion or framing 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 in the 1800s changed the world, but also a bubble. So I think that's kind of, it'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 so, 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's all of this expectation for buildout.

There is a, 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 he'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 I thought, you know, really interesting observation he 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, it seems like a really, it definitely seems like a fun space.

It's very far from when we were just talking about, like, utilities as, uh, I do think, you know, it seems like a really, it doesn't. It's rate proxies. Right. 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, vibe coders such as yourself. That's right. 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 Claudecode 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 phenomena 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 to. 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, ASML, 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, et cetera. So, like, if you want to just make I'm not making any case here. But if you just want to like make a bold 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, that even like, you know, for all of the talk of LNG export terminals, et cetera, that gas is expected to be cheaper a few years to know than 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 be. 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 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 is it at up? Right. Like as he pointed out, okay, chat GPT like came out two gigawatts, et cetera. Like there are a ton of chat GPTs 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 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 right now. 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, et cetera. 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, how they, what they could do, what scenarios and what they would allow it to be do 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 agencies, while they don't look at it as debt, they do back out a lease 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. It's super weird. 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 bibs more. I find to be very strange or 100 bibs more. It's like if I have a fixed, look, I'm 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. You're like going to get super rich on like, I just don't want to lose my. Like for 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 Odd Lots podcast.

I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wisenthall. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez at Carmen Armand. Dashel Bennett at Dashbot and Kill Brooks at Kel Brooks. And for more Oddlaws content, go to Bloomberg.com slash OddLod for the Daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord.

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wherever you get your podcast. You certainly ask interesting questions. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple podcast, or wherever you get your podcasts.