This is how bubbles grow. It's through that complexity. I mean, this is what the CDOs were all about. It was the slicing and the dicing and taking all of these financial instruments and then putting them into another financial instrument that the whole thing was too complicated to even parse out. And I do worry that that is the road that we are headed down where we're just making things more complicated than they need to be. Forming these SPVs, offloading the risk over to the private credit guy over here, and this one over here, and this one. Why don't you just do the debt yourself? Why don't you just do it, Meta? You think it's too risky?
Today is number three. That's the number of hours Japan's prime minister says she gets per night. Ed, I don't know if you've heard about the new corduroy pillows. They're making headlines. How much sleep do you get every night, Ed?
Seven and a half to eight is my baseline. How much sleep do you get?
It's weird. You think so? Sleep is one of those things that just leaves you. When I was your age, I used to just... I was a great sleeper. And the amazing thing is my boys are at that age where they can sleep 12 hours now and I'm like, let them sleep because they're growing. But I get, I would say I get six to seven hours now. I used to get eight. I don't think you need as much sleep when you're my age.
I'm jealous. I kind of lament the fact that I need so much sleep. I'll get eight hours and I'm still exhausted when I wake up in the morning. Drives me nuts.
It's weird. Or either that or you're just grumpy and tired all the time because you can't sleep. But yeah, I go to bed... I usually go to bed around 2 and I wake up usually around 9, and an hour of that...
Crazy. I guess you got to kind of work on US hours a little bit. But the 2 a.m. sleep time is nuts to me.
Yeah. But from 11:00 p.m. to 2 a.m. is when I get real work done. Like when I start actually writing well. And I don't know, there's something about that night time. Morning people are more productive supposedly. Evening people are more creative. I'm neither. But from 11:00 p.m. to 2:00 a.m., it's just me and the dogs and everyone's asleep and I feel kind of at rest. And that's when I find I can really do, I don't know, real work that'll stand out, if you will.
You know who else is like that? Margaret Thatcher. She would stay up till like 4 in the morning.
Yeah, me and Margaret Thatcher.
And then you know who else barely sleeps is President Trump. He supposedly gets around four or five hours a night.
No, he doesn't. It's just astounding to me.
He's a fat slob that sleeps in and watches Fox.
No, I believe that actually. I believe he watches Fox and he's got all of his other health.
You really believe he sleeps four to five hours? That's what they said about Clinton. I think that's a myth. I don't think...
I think that's real. So many people have reported it and it's not like they're necessarily bragging. I mean, maybe it is a brag. I don't know. I think it's real. I think it makes sense. Jeffrey Katzenberg said he only sleeps four to five hours a night. I sat next to him and I think that's got to take a real toll on you over time.
I think there are certain people who are just genetically predisposed to being fine with low amounts of sleep. I think Trump is one of those people and I'm very jealous. It basically just means that he gets like 20% more time in his life.
You die sooner. I think that catches up to you on the back end. Although he seems to be not dying anytime soon. Do you know how many hours a day dogs sleep?
Yeah, they're all asleep. Thank God. They'd just be constantly looking at you like it's snack time, isn't it? But anyways...
Scott, you also have some exciting news. Would you like to share it?
I have no idea what you're talking about, Ed. I'm befuddled by your query. I think it has something to do with a guy named Nome.
Well, thanks for asking, Ed. It's not like off mic I had to prompt you to talk about it. Yeah, I've been appointed to the Board of Regents of the University of California.
Yeah, it is exciting. You seem very excited. I am. You're very... more exciting for you.
I really appreciate how you're investing in our relationship. This is... why don't you talk about what it is and what it means to you.
So what it is is the governing body that decides the curriculum, the resources, and employment practices and where we invest and don't invest. It's a board that oversees what is, I would argue, the greatest innovation machine in history. 74 Nobel laureates, four out of five of last year's were faculty at the University of California. It has produced more startups and created more economic value than, I would argue, any state and arguably any nation with the exception of the US and China. And just on a personal level, it changed the trajectory of my life. When you get to my age, you have an obligation to reverse engineer your blessings to the things that weren't your fault. And all those roads lead back to the University of California that let me in with a 3.1 high school GPA and 1130 on the SAT, 74% admissions rate, and then let me into graduate school at Berkeley, the Haas School of Business, with a 2.27 undergraduate GPA. And then I got my act together and I kind of locked in and have registered some success because of the generosity of California taxpayers and the vision of the Regents of UC. And when I got a text message from Governor Newsom, who the Post called me his pal. I've met him once. I shook his hand at Davos. I don't even know how he got my phone number. Anyways, and I spoke to him, you know, I said, 'This makes no sense for me. I live in London. It's six times a year, two days. I'm super busy trying to build a business. Of course, I'll do this.' This for me is a full circle moment. I'm really excited and my mission and aim can distill down to one word: accessibility. If it hadn't been accessible for me, I wouldn't be here with you. And that's my mission. I want to figure out a way to grow freshman class size faster than population growth. But yeah, I'm boasting now, but this is a wonderful moment. I'm really super appreciative and reflective of the governor. And anyways, I'm just super excited to get to work.
You're here. Very exciting. Very happy for you. All right, let's get into our show. An investigation from Nikkei Asia revealed something concerning about some of the world's biggest companies. Alphabet, Microsoft, Amazon, Meta, and Oracle are carrying more debt off their balance sheets than on them. The companies have roughly $1.65 trillion in off-balance sheet obligations compared with the roughly $1.35 trillion in debt that they officially report. The situation with Meta is particularly concerning, with an off-balance sheet debt load of $420 billion, roughly three times its reported debt. So Scott, this was a really interesting investigation from Nikkei, and I want to just add some detail and some color to it. So, you know, there's one point we've been asking this question about the AI bubble for a long time. It's like, it's going to be bad if we see huge amounts of leverage. And this is what Andrew Ross Sorkin has talked about in his book '1929'. That's how bubbles are really built, not with equity, but with debt. And we have long been saying, you know, so far the debt has been relatively contained. Oracle is an outlier and we've seen that reflected in the stock price, which has been obliterated in the past year. But the companies that we really care about, like Meta, Google, Microsoft, etc., those companies have been, generally speaking, they've been managing their debt in a responsible way. So we can look at the amount of debt that we know exists that's on their balance sheets is around $1.4 trillion. Nikkei says we've gone and found that there's a lot of debt off the balance sheets that is worth $1.7 trillion. Bloomberg estimates it might be even higher. They think it's around 1.8 trillion. And essentially what is happening here is the big tech companies, instead of issuing their own debt, they are creating what are known as data center SPVs, special purpose vehicles. And these special purpose vehicles are basically these shell companies where the data center financing isn't provided through the bond sales of the tech company, but it's provided through someone else, in most cases private credit funds. So instead of Google going out and making a bond sale, which would have major implications for its own borrowing costs and its own financial health, see above Oracle, they slice and dice that debt, they offload it into the SPV, and the private credit fund, they provide the financing, and Google rents the compute from the data center. That's how it works. Now we should get into whether that's bad and if we should be worried. I have some thoughts, but I'll throw it over to you and see what you make of all this.
There is a sweet spot of leverage in the economy, both in the banking system and corporate debt, and even personally, a certain amount of leverage. But what big tech's 1.7 trillion in off-balance sheet debt versus 1.4 trillion reported, that gap is sort of the story. Because when you're hiding a bigger number than what you're reporting, that's not accounting. It's concealment. And Meta's off-balance sheet debt is $420 billion, which is 3x what they report. That's not a rounding error. That's a second company hiding liabilities inside of the first company. And the mechanism is that shell companies will fund the data centers, private credit funds the shell companies, and pension funds and insurance annuities fund the private credit. If you reach far enough into the barrel where you reverse engineer far enough, what you find is that a teacher's retirement account is underwriting Zuckerberg's GPU bill. And you know, Bernanke has said this, we're obsessed. 90% of the airtime on this show or on CNBC is about equities because they're more interesting and they have a daily scorecard and the movements are more dramatic. We're just in stocks, stocks are just more fun. They have more personality. They're more interesting to track. But whether it's the depression, whether it's a great financial recession, whether it's a dot-com implosion, nothing rings the bell of the beginning of a crisis like leverage.
I just want to clarify for our listeners like where the risk actually is here because, you know, the way we're talking about it, $1.7 trillion of, maybe $1.8 trillion of hidden debt, it makes it sound like, you know, big tech still is taking on that risk. It's just that they've buried it somewhere else, but they're still accountable for it. That's not really the case. What they've done with that $1.8 trillion is they have offloaded the risk onto someone else, specifically the private credit fund. So they create the SPV with the private credit fund. The private credit fund borrows the money to the SPV to build the data center. Google, as an example, then rents the compute from the SPV, and the income that is generated by that rental agreement is paid back to the private credit fund. So when you think about who's taking on the risk here, it's actually Google, Meta, Amazon, they're offloading the risk. They're saying we don't want to take on this risk. And he could say that that's a good thing or he could say it's a bad thing because he could say, why don't you want to take on this risk? I thought these data centers were a sure thing. But the whole business, the whole calculation rests on the assumption that the data center will pay back way more money than the cost of building it. That is the assumption. And the entity that is responsible for accurately modeling out that assumption and pricing in all of the risks and thinking about the depreciation costs of the GPUs and thinking about the demand, all of that stuff, the guy responsible for that isn't big tech, it isn't Nvidia. It's the private credit funds. It's all of the guys who are lending the money to the SPVs. And that's what this entire data center AI buildout is essentially predicated on at this point because as we've seen, the financing that's happening off the balance sheets of the tech companies is larger than the financing that's happening on the balance sheet. So the question you have to ask yourself if you want to believe that we are not in a bubble is the following: Do you trust the private credit funds? Do you think that they are accurately projecting the risks associated with building these data centers? And do you believe that they are motivated not by this AI data center gold rush where everyone seems to think that if you build a data center it prints money, that they are actually accurately and responsibly issuing this lending and this debt financing? That is the question. My view, probably not, because we've seen a lot of weirdness in the private credit industry. Probably the most obvious and scary example was the collapse of First Brands. This was back in September 2025. I don't know if you remember, but First Brands, this company, they filed for Chapter 11 bankruptcy. And it turns out they were in this very, very murky and bad financial situation. And they had been financed primarily by the private credit funds. And then it exploded and the private credit funds got burned. And that was when Jamie Dimon issued his famous warning about private credit. He said, 'When you see one cockroach, there are probably more.' This is where he called the private credit industry cockroaches. And that was its own thing. And now we're seeing it's extended to the data center industry. Those same guys are the same guys who are underwriting these data centers. And the question you have to ask yourself is, do you think they're doing it properly? Do you think that they are underwriting these data centers in a responsible way? I think it's definitely up for debate. I think it's very, very precarious. And the fact that it's so opaque and the fact that this industry has little to no regulation, again, a blunder of the administration, that makes me think that we are headed for potentially a very ugly situation.
I'm torn on this because I think there's a lot of nuance here when we talk about, when we're reductive and just use the term debt. So I think our national debt and a bipartisan agreement to just consistently spend more than we take in in terms of tax receipts, I think that is irresponsible and leads to a bad place. I think a surge in credit card debt among households who can't afford to pay their bills, I think that leads nowhere good and is a signal of irresponsible behavior or a poor economic environment. I think that working with a lot of private credit funds, keep in mind, when these companies take out debt, you know, the people assessing the risk are very smart people and they look at the security against that debt. And in the case of someone like Meta, I would imagine that if that debt's going to get paid, I believe if they default on it, is it secured by the data center itself? Is it secure? I mean, the question is what is the credit here? And if they're trying to offload the li... if they're trying to hide it, fine. As long as they're on the hook for it. If they're not, then buyer beware and these credit funds are subjecting their LPs to risk. And that risk has paid off for the most part for the last 17 years. Those funds, they haven't delivered above market returns, but they've delivered, you know, the returns of the market minus their fees, which has been exceptional returns for the last 17 years. I do think that leverage and debt, I'll use banks as an example. Banks loan out $120 or $130 on $100 in assets. That's a form of leverage. Elizabeth Warren wants to move it to where for every $100 you take in, you lend out to people, you have to take out one for one $100 in deposits. Responsible, makes sense. But here's the thing. Leverage also equates to growth. When you have 20 different depositors giving you that $100 and you loan it out to 30 different people and you loan out four bucks or whatever it is to get $120 in loans on $100 in equity, you grow the economy faster. And as long as you're lending to different people, that leverage results in greater economic growth. And so a certain number of bank failures, a certain amount of debt failure reflects that the economy is taking a certain amount of risk that results in growth that is better for the country. So it's easy to say all leverage is bad and these private credit companies are way out over their skis. I get it and there's some truth to the notion that we're due for a recession and it'll likely start in the credit markets. Having said that, one of the amazing things about America and why our GDP is up 40% more than the GDP of Europe, which was approximately the same per capita in '95, and now we're 40% above them, is because those same private credit analysts, those same VCs are more comfortable with risk than the private credit analysts in Europe.
I think that's true. But I think the problem comes when you start taking on risks without all of the facts properly lined up in your head...
