OpenAI buys TBPN, SpaceX’s $2 Trillion IPO?, Iran Disables Amazon Infrastructure

20:19Big Technology Podcast Hosts:Well, it takes a lot of compute to do a lot of these things. And it's not as easy as saying, let's just allow the AI to do it.

20:26Liz Hoffman:No, you're seeing it on the other side, too. These tokens are expensive, right? I mean, the bills that are starting to rack up people who use it, it's a bit of a sticker shock there, too.

20:36Big Technology Podcast Hosts:Yeah. So you have the token prices, you have the video prices. And so this moment where AI will take over everybody's jobs, I think is a little bit overblown. But you had a very interesting conversation with Larry Fink, CEO of BlackRock, about a few things. And first is AI jobs that he talks about. He says, AI is going to create many jobs and we're not prepared as a society to fulfill those jobs. That's a crisis. That's an interesting perspective. Can you talk a little bit more about that?

21:05Liz Hoffman:He was really talking about blue collar jobs that, you know, which were already really in short supply, the people to fill them. You're talking about welders and electricians, which is in some ways like the last jobs that the robots will take, that HVAC plumbing. That stuff seems hard for AI to do in the physical world. And it's acutely needed now to build all the data centers that BlackRock and others are financing and throwing up to service, you know, open AIs, compute needs, and all of that. You know, but on the broader jobs front, I guess it is a lot easier to see, and maybe this was true of past industrial revolutions.

21:45Liz Hoffman:People talk about this as the fourth industrial revolution. It's a lot easier to see the jobs that AI will kill than the jobs that it will create, and particularly in the knowledge economy. I've spent the last 15 years covering Wall Street, and these are big pyramid businesses where a lot of, you know, they hoover up these kind of young graduates from the Ivies and from business schools, and they spent a bunch of years doing a kind of dredge work, like consulting, investment banking, that kind of thing. A lot of PowerPoint presentations, a lot of spreadsheets. And I can actually today do almost all of that.

22:19Liz Hoffman:And so, you know, the other thing Larry said in the interview is that, you know, you're going to see this cohort. He was basically saying like, woof, like class of 2026, right? There's going to be a couple of years where the skills gaps are just really, really wide. And we're going to see, I think we're going to see massive youth unemployment. That 22 to 25-year-old cohort for the next couple of years, it's already elevated beyond the national unemployment. And I think you are just going to see that skyrocket. And that's really bad. We don't have a solution for it.

22:51Big Technology Podcast Hosts:Yeah. I mean, I could see the firm saying we have AI to do that entry-level work. On the other hand, I might be scrambling to university campuses to try to get these 22-year-olds who understand AI into my organization and working with it for my company?

23:08Liz Hoffman:I think you're actually worried about that gap a couple of years. I think I was sort of internet native, right? But it was probably not mobile native. I got my first job in 2000. I think I had my first job before I had my first iPhone, if that helps you. And then you had a mobile native employee base. I'm not sure how helpful that was. Mobile is obviously a big platform for our lives, but it's fairly intuitive. But I think you may end up with a generation of workers that just get skipped. Like, you know, what are people saying? Like, I'm not going to lose my job to AI. I'm going to lose it to someone who knows how to use AI.

23:45Liz Hoffman:And so I am endeavoring to learn how to use AI. But I'm like afraid of high schoolers. I'm not afraid of 25-year-olds right now because I don't think they are in a much better boat than slightly older people who kind of understand the internet. but are not AI native. And there's the same argument, I think, I've been thinking a lot about this actually, like with the SaaSpocalypse and the tech companies and the shakeout there, that I wonder how much of an advantage it is going to be to be an AI native company, right? There's a lot of questions of, well, can Salesforce just do enough with agents and build enough of its own AI to remain relevant and sticky?

24:21Liz Hoffman:But the real question to me is the AI native companies that are being built directly on top of these models? Is there something in the DNA there that makes them win in the way that really with the exception of Microsoft, that pre-mobile generation of tech companies just got totally overshadowed and overtaken by the ones that were built right on top of the internet?

24:45Big Technology Podcast Hosts:And what's your best guess as the answer to that one?

24:48Liz Hoffman:I don't know. I don't know. But I think I suspect that this is a bigger technological leap than anything we've seen, certainly since the Internet. It is bigger than mobile. And I think there's probably something in the DNA of AI native companies that will help them succeed. Like I've been on a tour talking to a bunch of lawyers recently. And like, you know, they're using Harvey. They're using Lagoda. And, you know, Thomson Reuters has spent a lot of money on AI and they have this thing called co-counsel. And that's actually a perfect case study. Like, can Thomson Reuters, you know, 100-something-year-old, you know, big professional services and media organization build enough AI to remain relevant?

25:34Liz Hoffman:Or does Harvey just come and say, like, we just built this all in Anthropic. And by the way, we have like 50 employees and we're not hiring anymore. I mean, that is where the economics start to go sideways for legacy companies. Definitely.

25:46Big Technology Podcast Hosts:I mean, this was the argument that Sam Altman made to me at the end of the year last year, where I asked him about the competition with Google. And he goes, basically, there are going to be two types of companies, ones that try to bolt AI on and ones that build AI from the ground up. He goes, we're building AI from the ground up. They're bolting it on. That's why I think we have the chance to win.

26:06Liz Hoffman:He might be right. But that's obviously, that is the right question to ask about big tech right now.

26:11Big Technology Podcast Hosts:We just got new jobs numbers in. Are you seeing anything in terms of AI job loss in the new numbers?

26:18Liz Hoffman:Not really. The job numbers came out today for March pretty good, actually, and on the heels of some couple of months of very, very bad ones. I think there was a report yesterday from a private data tracker called Challenger Gray that does track sort of what it counts as AI-related job losses that are obviously growing quickly. My theory on this is that AI is an excuse for companies to do layoffs. Just like the tech isn't good enough. It isn't embedded enough workflows to like maybe outside of tech companies. You know, Mark Zuckerberg has talked a lot about kind of what a meta engineer is and isn't doing right now.

26:59Liz Hoffman:So maybe there, like they will hire more slowly. I think it's air cover. These are companies that massively overhired, you know, in the late 2010s through the pandemic, didn't want to fire people in the middle of a pandemic because it makes you look bad. And then we're kind of frozen for a couple of years and couldn't quite figure out what to do. I think AI is just air cover.

27:20Big Technology Podcast Hosts:Yeah, I saw unbelievable data from Indeed this week, actually, at a conference down in Dallas where you looked at software developers. And I'm just going to describe the contours of the chart because I was asking about whether we've seen an increase in developer hires or developer listings on Indeed, and we have. But it's this small tick up, and then you scroll back to about 2020, 2021, right mid-COVID, and there's a mountain of new listings. So clearly there was just a massive hiring phase, and people are trying to figure out what it means for their companies in 2026 still. And when they realize they've overhired, they say AI because it's a lot more convenient and forward-looking to say that than to say, oh, shit, we mismanaged our company.

28:08Liz Hoffman:Totally. And Jack Dorsey can, you know, lay off a bunch of people and say it's AI. And maybe people believe him, but I think it's totally an excuse. And like the software developer is an interesting one. I was talking the other day to the chief commercial officer at Anthropic and, you know, he was sort of saying that you have all of these developers, but they are basically managers of a bunch of bots that are writing the code. I think like 99 % of the code for Claude is written by Claude. And like, that's fine. That person has a job that's a slightly different job, but it's the people who aren't hired to be those junior developers.

28:45Liz Hoffman:I mean, this is like an exponential trend, not a linear one to me because of the industries that are being so hit by this are these knowledge economy jobs, and they have the widest pyramids of any big companies. Just you think about kind of the junior associates, the baby investment bankers, the baby lawyers, the baby consultants. That pyramid is going to go from this to like this, to this, to this. And I think, you know, it's going to end up being like a diamond or something.

29:14Big Technology Podcast Hosts:Explain to those who are listening what you're doing with your hands.

29:16Liz Hoffman:Oh, sorry. I was making the pyramid get narrower at the base until it eventually turns into a chimney and then maybe even a diamond where like the actual, the biggest chunk of the workers are, you know, people your age, my age, who are like pretty competent at managing a bunch of agents. And then you have some senior people at the top, like generating a bunch of business.

29:37Big Technology Podcast Hosts:That is crazy. All right. I definitely want to talk about the SpaceX IPO because Elon Musk and co have filed for that IPO. And we also have some news about Amazon data centers in the Gulf. And potentially we can talk about what's going on with private credit and AI. So we're going to do that after the break. But first, Liz, I'd love for you to shout out. You have a new podcast and people should go and find it and listen to it.

30:01Liz Hoffman:I do. Thank you. Yeah. You look like you were having so much fun in podcast land. We decided to join your ranks. Yeah. We launched a show about six weeks ago called Compound Interest. It's our business and finance show. And it's weekly interviews with people who are like right at the middle of these big forces that are shaping how businesses are run and how markets are functioning. Had to run a great guest. We've had Dara from Uber on kind of talking about what a driver, you know, the future of Uber is, as he tells it, essentially tucking the robo taxis in at night, the kind of care and feeding of these big autonomous fleets was super interesting.

30:34Liz Hoffman:So yeah, it's been, it's been a lot of fun, but it's given me a lot of respect for, for what you do. It's harder on the other side of the mic.

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32:16Big Technology Podcast Hosts:Learn more at go.amex.com. We're back here on Big Technology Podcast talking about all the week's tech news with Liz Hoffman. She is Semifor's business and finance editor. Let's talk SpaceX IPO. SpaceX, they're going to try to go public at a valuation of$2 trillion. I think they're going to look to raise something like$40 to$80 billion in this IPO. So what do you think about this? Is this sort of where you expected it to land? I mean, it looks like they're going to, this is according to Bloomberg, at more than$2 trillion, SpaceX's valuation would increase by nearly two thirds in a matter of months.

32:54Big Technology Podcast Hosts:The company's acquisitions of Musk's XAI company valued SpaceX at$1.25 trillion in February.

33:02Liz Hoffman:On the one hand, I find it kind of comforting as a finance reporter. Like, I've had this theory for a long time that these companies were eventually going to have to go public, that it stayed private for so long. That was really the story of kind of the late 2010s and early 2020s, that there was just so much private money out there that, like, who needs the public markets? But actually what this generation of big startups is doing, as we've been talking about, is super capital intensive. You know, it's really expensive to build rockets. I think SpaceX actually is profitable. So in a bunch of ways, it looks really different than that generation of companies, software companies that went public in the 2010s.

33:39Liz Hoffman:I mean, what I'm watching for is like, that's a lot of money. It's got to come from somewhere. I mean, it's weird. Like, we don't usually think of IPOs as like market rotational events that require a bunch of money to move out of one set of investments and into another. But$80 billion, that would be three times larger than the largest IPO ever, which was itself 10 times larger, 20 times larger than the average IPO. I mean, that would have been the Saudi Aramco IPO in 2019 that raised$25 or$30 billion. But the average IPO over the last 25 years raises about$200 million. And so that is an easy job for investment bankers.

34:19Liz Hoffman:But, you know, I wrote the other day that that giant sucking sound you're going to hear in the markets, you know, this May and June is is bankers running around asking for 80 billion dollars, which, by the way, I think they'll get. This is a profitable company that, like, seems to do an important thing really well. And Elon Musk is an incredibly good salesman. People want to to invest in his companies. But that's got to come out of somewhere, actually. And I think if you've got stocks still beaten down by the war by then, investors are going to be pretty reluctant to crystallize those losses by selling.

34:52Liz Hoffman:I don't know. I think you could actually – this is a big enough movement of money that you might see some weird knock-on effects in kind of more liquid markets. I'd have my eye on treasuries if I were a betting woman. So, yeah. I mean, it's giant. But I think it is good. I think that, you know, Anthropic, just to take an example, is as valuable at, what is it, four or five years old now as Google was when it was 15, as Amazon was when it was 25. And all of its wealth has been created in the private market in the hands of a relatively small number of people, whereas 99 percent, I think Google was worth$20 billion when it went public.

35:30Liz Hoffman:So 99 percent of its$4 trillion of value has accrued in public hands. And I think that is generally good to go back to what we were talking about earlier. And there is like the wealth gap that AI is threatening to just massively explode. I think it's like a really dangerous political force to keep an eye on. And so like I would encourage these companies to go public. Yeah.

35:53Big Technology Podcast Hosts:So this would put SpaceX at bigger than, this is again, according to Bloomberg, all but five of the companies in the S &P 500. So only NVIDIA, Apple, Alphabet, Microsoft, and Amazon would be bigger than it. it would be bigger than Meta and Tesla. And by the way, I think speaking of places that we could see people move money from and to, I think a lot of Tesla shareholders might say, oh, if I'm doing this to bet on Musk, if I could get a hold of SpaceX, which has like a clearer, I think a clearer trajectory, like Tesla right now is a bet on Optimus and SpaceX is like a bet on space and AI, I might just sell some shares from Tesla and buy in SpaceX.

36:39Big Technology Podcast Hosts:And that could be very interesting.

36:40Liz Hoffman:I think that's right. Though I would also say, I think one of the underappreciated reasons that they are taking SpaceX public is to merge it with Tesla, ultimately, right? Like Elon Musk has been collapsing his empire. And just as a practical matter, it's pretty hard for a private company, even a big one, to buy a big public company. It just doesn't work that well. You've got to come up with a lot of cash. You can't use your stock. And so I would assume that Tesla gets merged in at some point. And so then it's just a question of like, you can do the math and what's the sort of cheapest way to get yourself a share in the combined Tesla SpaceX?

37:15Liz Hoffman:I don't know.

37:16Big Technology Podcast Hosts:That's very interesting. Yeah, maybe that will happen. That will be crazy. One super Musk company.

37:22Liz Hoffman:I think that's where it's headed. Yeah. And he's done this before, you know, he bought SolarCity with Tesla, sort of famously complicated deal and had some theory of the case that they were going to put solar panels on the cars and they never really did. But yeah, it's clearly what he's been up to with XAI and X and SpaceX and all that.

37:41Big Technology Podcast Hosts:Okay, I want to talk quickly about the story that I just published today in Big Technology. And that is that we have some reporting that Iran has hit enough sites in Bahrain and Dubai that belong to Amazon, that there are a couple of availability zones in those regions that are hard down, according to some internal communication that I was able to see, and that they're going to be unavailable for an extended period of time. So this is from the internal memo that I was able to get a hold of. The two regions continue to be impaired and services should not expect to be operating with normal levels of redundancy and resiliency.

38:19Big Technology Podcast Hosts:We are actively working to free and reserve as much capacity as possible in the region for customers and services should be scaled to the minimal footprint required to support customer migration. So not only have these sites been hit, but the company is asking employees within AWS to deprioritize them. And I think this is interesting. I mean, we're about to enter week six of the war. And now the IRGC is threatening multiple other U.S. tech giants, including Microsoft, Google, Apple, Intel, and a bunch of others. So if this war continues to keep going, we could actually see a lot of big tech infrastructure in the Gulf, which was obviously built because there's access to money, access to energy there, and big investments have been made there.

39:07Big Technology Podcast Hosts:We could see it targeted.

39:10Liz Hoffman:Yeah, do you think, I mean, I'll ask you a question. Like you cover these companies. Do you think this war has made them I'll give you my thoughts on the Wall Street side. But do you think this has made them rethink this massive rush into a region that like has just been volatile and violent forever in the last five or 10 years, like built a lot of fancy hotels and had a lot of money and sort of tricked people into thinking it was safer than maybe it is?

39:34Big Technology Podcast Hosts:I will say this. I think there's a lot of optimists out there in the business community. and so my read on their perspective is they are hoping that this is going to be the last war for a while and it's not something that will continue to go on basically they they're viewing it as a war to finish wars and you almost have to view it through this optimistic lens because you know think about what we're hearing now from the ai labs right like they have gone through basically all the funding they can get in the Western world. And now they're like sort of at the final boss before the IPO, which is the Gulf states.

40:14Big Technology Podcast Hosts:And then they're going to go to the public markets. So it's like one of the last remaining sources of capital for them. And I think like we talked a little bit earlier about how Silicon Valley can sort of have this, you know, rose colored glasses on situations. And this might be one of them. So that would be my perspective on it.

40:32Liz Hoffman:I mean, this is what happens when you VCs are all like up and to the right dreamers. I don't know, you said war to end wars. And I just like, that is what everyone said about World War One, too. So I don't know that that gives me bad vibes. It's it's interesting because, you know, Wall Street has kind of made the same rush into the Gulf that that big tech has for similar reasons. And I don't know. I mean, I think it is a people business. fundamentally you're talking about hard assets. Actually, I was just talking the other day to the guy who runs a big business at Aon, the insurance brokerage.

41:09Liz Hoffman:I was like, I wonder what's happened to the cost of literally you can buy war insurance, which insures these assets against war and terrorism and damage. He said prices have gone up 1 ,900%, and the available coverage for a single asset has gone from$3 billion to $100 million in a matter of a couple weeks. You used to be able to get it for 25 basis points, and now it's costing 5 % in premiums up front. So, you know, the people who underwrite risk for a living think there's a lot of risk of bad stuff happening to these assets. But then on the people side, you know, for a while, like being in the Gulf was, I say this in air quotes, like it was a hardship posting, right?

41:45Liz Hoffman:You would get more money in an expat package and on top of getting to pay no taxes for a couple of years, your golden sacks would send you out there. And it was a hardship posting. And I think it was just on the verge of becoming not that. It was just on the verge of being another global office for these big multinational companies. And I wonder whether, you know, the people who have the expats who've left during the war, like want to go back and at what cost? All right.

42:12Big Technology Podcast Hosts:I'm going to do two follow-ups here. First of all, what do you think the lack of the ability to insure will do to companies' ability to build there. I would imagine that the tech giants will be able to keep building no matter what, because they have so much money, but who knows? And then, yeah, what happens if the people don't want to go back?

42:32Liz Hoffman:On the first one, I would take the other side of that. They have a lot of money, but in the same way that you can't get a mortgage on your house if you don't have home insurance, that's just a requirement. The bank requires it because the collateral is the house. You cannot get financing to build these data centers without an insurance policy. And as you say, these companies have a lot of money, but they've required, look at what Meadow is doing in Louisiana as a big data project. And they took a lot of private money from Blue Owl and PIMCO and the market because they don't want it on their balance sheet.

43:04Liz Hoffman:So you can't insure this stuff. You can't build it. Okay.

43:09Big Technology Podcast Hosts:And the people? Oh. I think the people will go back. I think they're just going to, people are motivated by ambition and money. I think that's right.

43:17Liz Hoffman:And there is something to living a tax-free lifestyle in the Gulf that is quite attractive to the right kind of person. But I do think it probably sets back the kind of full inclusion of that region into the global sort of high finance set, you know, a little bit for sure. Definitely.

43:37Big Technology Podcast Hosts:Have you been out there? Have you spent time out there before?

43:39Liz Hoffman:You know, it's funny. I have. I was in Saudi Arabia last year. I was in Abu Dhabi the end of – in December. And I remember flying in, and I don't know why it hadn't occurred to me, but you're flying into Abu Dhabi and out the right side of the plane is the Arabian Peninsula and the Emirates. and then the left side right across the, across the Gulf is Iran. I mean, it is, it is when you go, it's, it's easy to forget because you're in Abu Dhabi and there's a Galleria and there's a Four Seasons and like, it feels very Western and there's a lot of rich people in suits walking around, but it's like, I heard about this a couple of weeks ago.

44:14Liz Hoffman:It is a nice house in a bad neighborhood. Yeah.

44:17Big Technology Podcast Hosts:I was in Qatar over the summer and I think I've said this on the show, So it might not be new ground, but just a little too hot for me. I mean, maybe it was the season that I was there for, but it was, I think, above 100 degrees Fahrenheit at night. And I've never seen this before, and I don't think I'll ever see this again unless I go back to Doha. In downtown Doha, the sidewalks are air conditioned, which means that as you walk down the sidewalks, you feel a cold breeze coming up. And that is because there are vents underneath the sidewalk blowing cold air and turning what is a hundred degree night into something that feels more like an 80 degree night.

45:00Liz Hoffman:No, but I think that's a little bit of a metaphor for the whole place, right? Like this is a structurally problematic region of the world that they have engineered into feeling a little more comfortable than it probably ought to.

45:11Big Technology Podcast Hosts:That is that is a good metaphor. Okay, so last thing that I want to talk about before we go, you talked about private credit. You talked about how Meta used Blue Owl effectively to build some of its data centers. And we've talked about this on the show a bit, but we can talk about it a little bit more. Things are getting a little hairy for these private credit companies. This is your story this week. Blue Owl faces withdrawal flood as private credit jitters persist. Investors rushed out of Blue Owl's flagship and technology-focused credit funds as jitters continue to sharpen in private credit.

45:44Big Technology Podcast Hosts:Its largest fund, a$36 billion pot of corporate loans, received redemption requests for 22 % of its assets. And a smaller$6 billion fund saw 41 % withdrawal rates. And Blue All Cap, both of those, had 5 % withdrawals. So basically this means a lot more people want to go and get their money out of these private credit companies than it's willing to distribute. and is this the beginning? I mean, everyone's wondering, is this the beginning of a crash that's going to take down the whole economy because they made these investments that might not pay off in AI infrastructure? What's the truth?

46:24Liz Hoffman:Yeah. All right. I think you have to unpack it a little bit. Yes, it is.

46:28Big Technology Podcast Hosts:Oh, okay. We have to unpack. All right.

46:29Liz Hoffman:What we are actually seeing and those redemption numbers, we are seeing a slow moving run on a bank. So to go back a couple of years, remember when Silicon Valley Bank like failed over a weekend because everyone took their deposits out? That is basically what is happening in the private credit industry. Because of the way these funds are set up, you noted that they gated at 5%. And that is true, but that's what they're supposed to do. These funds are required to make quarterly offers to buy back. These are non-traded funds. So you own a share in it, but it's not like you can trade it on an exchange.

47:01Liz Hoffman:But every quarter you can go to Blue Owl and say, I'd like my money back for the share. And they'll give it to you as long as in aggregate, not more than 5 % of people want to do that. So that's what they're designed to do. Because remember, they're holding loans that they can't buy and sell very easily. So they keep some cash on hand to fund those withdrawal requests. And whenever things working fine, it's working fine. But obviously this is designed to malfunction when there's panic, which is where we are now. So for the moment, it's a bank run, which is a liquidity problem. They have illiquid assets.

47:34Liz Hoffman:People want their money back. That is not a fixable problem. So that's where we are on that side. The other question which you're getting at is, is there a credit quality problem? Are the loans themselves bad? Yeah, why are people making this run?

47:48Big Technology Podcast Hosts:Is it just behavior? Talk about that.

47:50Liz Hoffman:It is partly behavior. It's partly, look, like for the first, you know, six years it was around, Blue Alps just raised money from sophisticated institutional investors. And it's not just Blue Alps, Blackstone and KKR and Apollo and all of these HBS big firms. And then they said, well, we're kind of tapped out there, but there's a whole bunch of individual people. What if we sold it to them, too? And because people live their lives differently than institutions, you have to give them this quarterly liquidity. So this is sort of like they were this is a consequence of their own actions and their own desire to keep growing and to find new new places to raise money.

48:28Liz Hoffman:The question of whether the loans themselves suck, that is a fair question. We don't actually know. A lot of them are, certainly there's this vintage of lending from, call it 2021 and 2022, probably some real bad loans there. They raised too much money. This was the sort of peak software. They were making these loans, I don't know if you've talked about them on the show yet, called ARR loans. Usually banks underwrite a company's ability to borrow based on its profits. but tech companies, especially fast-growing ones, don't have profits. They have revenue. And so they based it on annual recurring revenue.

49:02Liz Hoffman:They said, well, this company's making a lot of top-line money. Let's make that the metric. Let's change 10 ,000 years of lending economics. Make that the metrics. And then three years when they've got a profit, then we'll flip a switch and the loan will start behaving like a traditional loan. And then they got to three years and none of those companies had profits. And they're like, oops. So obviously the credit underwriting was pretty bad on a bunch of that stuff. But, you know, Blue Owl was able to sell a couple weeks ago. They had this problem in another fund and they were able to sell, I think, like a billion and a half of loans at 99.7 cents on the dollar.

49:36So I don't know.

49:38Liz Hoffman:I think like most of the loans are probably fine. And by the way, not to like, I'm sure your listeners understand a capital stack, like the credit, this is senior secured credit, which is the safest place to be in any kind of corporate financial structure. If you think there's a problem there, the equity underneath it, whether that's mostly private equity, is like a zero. So it is weird. If you imagine this is like a floodwaters coming in, it's weird to have the people on the top floor panicking first before the people on the ground floor. And yet that's what's happening. And so that makes me think that this is sort of more emotional and technical and less about the loans themselves might be bad, but I don't actually think that that is what is informing what's happening now.

50:26Big Technology Podcast Hosts:Okay. Andrew Osorkin was recently on talking about the similar thing that private equity would have the problem before private credit. So let me just see if I can understand where the issue would be and you tell me how off I am because I'm going to be off here. Is it that private equity has invested a lot of money in software companies and now there's this thing that's called AI that sort of throws the value of those software companies and those companies ARR into question. And so therefore the private equity companies that have bet in the software companies begin to fail. And then when they fail, private credit starts to fail.

51:07Big Technology Podcast Hosts:And that's how you get this case cascading economic disaster. Is that the worry here?

51:13Liz Hoffman:I mean, sort of, that is how finance works, right? Which is that if a company gets in trouble, the first losses are borne by the shareholders, right? And then the creditors get whatever is left. So as a practical matter, that's true. These companies, their revenue would go away, their profits would go away. They would be unable to repay their loans. Their lenders would force them into bankruptcy. The equity is zeroed out. And so that's where you would look at firms like Toma Bravo, Vista, right? These are big PE firms that only own enterprise software companies, basically. They own tech businesses.

51:51Liz Hoffman:So that's where you're actually looking for the problem. And then the creditors will get what's left. And some of those loans will be what we call impaired, and they might lose some money. Maybe they only get 90 cents back on the dollar that they lent. But that equity, which is hundreds of billions of dollars of equity sitting junior to this credit, is worthless. The reason that people aren't talking about this as much, I will say, I started writing about this like three months ago and I was like, where is the panic there? And the answer is that it's actually, they just haven't marketed those funds to individual investors the same way private credit has.

52:23Liz Hoffman:So the twitchiest people - Why does the equity become worthless?

52:30Liz Hoffman:Because it's, I'm trying to think how to explain this in a way that isn't going to be like super boring. It is in finance speak, it is junior. It is a junior claim. So if you think about building a house, the foundation is the equity. Correct. The private credit is in the penthouse when the flood comes in. The equity is on the ground floor. So they just bear the losses first. And then it goes up to be, you know, the preferred equity and then the junior credit. But the private credit, these are senior claims that are secured mostly by assets. There's going to be something left for these guys.

53:03Big Technology Podcast Hosts:Software company fails. Actually, the private credit companies get whatever's left of the assets first and then private equity.

53:10Liz Hoffman:Yeah, exactly. If they've lost money, the equity has lost all of their money.

53:15Big Technology Podcast Hosts:Isn't it interesting that private credit is funding the establishment of these AI infrastructure builds as those AI infrastructure builds, then go to effectively undercut all these companies that private equity has invested in?

53:33Liz Hoffman:We're all funding our own demise at all times. I would, I would know this is like a slight technical point. The part of Blue Owl that is doing the, that the data center stuff is like a business that they bought that's actually unrelated to their credit business. But yes, you know, Blackstone's probably a good example of this. They got a big data center business. They own QTS and a bunch of these data centers that are, you know, creating the technology that is sort of wreaking havoc in their private equity book that is then wreaking havoc in somebody else's private credit book. So.

54:06Big Technology Podcast Hosts:Unbelievable. We are all funding our own demise.

54:09Liz Hoffman:Yes. Except us in independent media. We're doing the Lord's work, you and me, Alex.

54:13Big Technology Podcast Hosts:That's right. Yeah, well, of course, you know, for anyone who's making a big finance decision about big technology, we'll use ARR and not anything else, right? Obviously.

54:22Liz Hoffman:Yeah, but to go back to where we started, like, what are you going to sell this podcast for? TVPN just put a pretty good comp out there for you. So obviously on a revenue basis, I would never ask you your profits.

54:32Big Technology Podcast Hosts:Big technology, for those who are wondering, we're not for sale. We're not going to OpenAI. We're not going to Anthropic. We're not going to XAI. We're not going to Salesforce. We're not doing that. But this show, this newsletter that I write is staying independent. We're not selling. And I'm going to just keep doing this for the next 20 or 30 years and then retire. So stick with us. Hold on to your integrity. That's right. I mean, I also, I'll just say it. I enjoy doing this. I don't want to work for somebody else. Like I said at the beginning, you know, the second you come inside a company, you're now that company's content marketing arm.

55:09Big Technology Podcast Hosts:You're not doing what you did. You're doing something completely different. and that's not what I'm interested in doing. If you want to advertise on the show, that's a different story. You can advertise here. We're happy to hear from you. Check out the email address in the show notes, but no, not for sale.

55:25Liz Hoffman:All right, good to know.

55:27Big Technology Podcast Hosts:The podcast is called Compound Interest. Liz Hoffman has been our guest. Liz, welcome. First time having you on the show. This was really fun. Thank you for coming on.

55:36Liz Hoffman:It was a pleasure. Anytime. Thanks for having me, Alex.

55:40Big Technology Podcast Hosts:All right, everybody. thank you so much for listening and watching. We'll see you next time on Big Technology Podcast.

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