Blackstone's Earnings Call Exposed Their Real Strategy

trillion dollars in assets under management. Good morning to you. So many things to to walk through in the quarter. Obviously, the AI infrastructure piece is probably the standout and maybe we should talk about that especially given what we've been talking about with Alphabet this morning and how much money it's planning to spend on its continued build out, but also we should probably talk about private credit as well, John. >> Sure, Andrew. It's great to be with you. We had a heck of a quarter. We had 26% earnings growth. That was on top of 25% growth in the first quarter. But, the thing that is really exciting for us is this strategic pivot into that AI world and AI infrastructure is really paying benefits to our investors and our various vehicles. We really got a front row seat to what was happening here. If you go back to 2021 when we bought QTS, our big data center platform, and we saw the demand that was growing and we started investing in scale across this ecosystem. We did it in energy and electrical equipment, data centers, neo clouds, foundational models. And those seeds we planted are starting to come to bear real fruit today. We sold a data center portfolio a couple weeks ago at a large gain. We sold a big battery storage company yesterday for $7 billion and we're not done with this seed planting. In the quarter, we announced partnerships with Google around their TPUs, with Anthropic in deploying their technology, with Broadcom around financing their chips. We're doing this in debt and equity. And as a firm, we really sit in a unique spot at the intersection of AI and the physical world. So, we're big believers in this global shortage of compute and we're doing it and investing in what we think is a really thoughtful way, and it's beginning to pay off for our investors, and that's what really excites us. >> John, when you sort of look at at the future, how many more years of spending at this kind of pace do you think we are going to see? Obviously, even this morning, interestingly, some of the investors don't seem to be giving, you know, there was a period of time where any tech company, hyperscaler, had said they were going to spend more money, investors applauded. When it came to Alphabet this morning, there was a little bit less applause about higher spending, and I'm so I'm curious how you're thinking about that and how you think we all should be thinking about that. >> Well, I think the context is thinking about supply and demand. And the market obviously is concerned about this kind of capital spend. You know, people talk about what happened in the telecom boom and bust in the '90s. They talk about frankly housing where where we had a bust in '08, '09. But in those cases, what we saw was massive speculative overbuilding, and supply ran way ahead of demand. What we see in this marketplace today is something that looks very different. The demand is growing so quickly. I think Anthropic's revenue has grown run run rate fivefold since the beginning of the year. At our portfolio companies, we've seen a sevenfold increase in spend on large language models in just 6 months. And we're seeing powerful application of this technology at our companies. It's early days, but the returns are really strong. And then on the supply side, you don't build data centers and power plants speculatively. What you need is enormous investment that requires long-term contracts in almost all cases from big, lowly leveraged investment-grade companies. And so right now, there's a shortage of compute. If you had compute today available for 26 or 27, there would be plenty of hyperscalers and large language model companies to take it. It feels like we've got a long way to go. Most of us in our lives, our businesses, are just starting on this journey. It doesn't mean, by the way, there won't be misallocations of capital, there won't be losers, but in aggregate, we really think this is a new operating system for the global economy. You've got to make this enormous physical investment, and I do think it'll pay big dividends over time. >> Hey, John. Not to harp on this, but we just had Michael Nathanson on talking about some of these issues. He thinks that the capital markets will kind of put the kibosh on some of these companies being able to spend those same amounts. He He likes Alphabet because they have a very deep war chest, said the same thing about Meta and Amazon for those reasons. But, he thinks there could be a point where an open AI or an Oracle is going to have to rein in some of its spending. I I I just wonder how that plays out on the larger thesis for a if you agree with that, but if you how you think it plays out on the thesis for there's huge demand for this, somebody's got to spend from somewhere. What would that do to the entire ecosystem if that were to happen, if some of the big players who have been big spenders to this point had to pull back? >> Well, there is obviously gravity from the capital markets, um and you could see cost of capital go up for non-investment grade companies, um certainly those companies who issue more debt. But, you will also see, I think, a response, more equity raised. And it's also going to be a function of how these companies perform. The fact that Google's revenue was up 24% yesterday was powerful. The first quarter results from the hyperscalers saw their earnings grow 60%. So, I think it's going to be a yin and yang. There's going to be concern about this spending, but then the question is, are they getting a return? And if you went back in time, Amazon for years, people said, "What is this bookseller doing spending enormous amounts of money to build out this huge warehouse network?" Well, that turned out to be a very good decision. So, I do think there will be some limitations because of the scale of the build. There's also going to be limitations we see obviously in power. There could be political pushback. But at the same time, we're seeing enormous leasing activity and demand. Our data center platforms leased 1 gigawatt in '24, 2 gigawatts in '25, and this year we think we'll lease at least 7 gigawatts. And that's more than a hundred billion dollars of data centers, another couple hundred billion dollars of chips. There are limitations, and the market may make it harder, but I still think because there's so much demand for the underlying compute and the productivity it's going to create, I think we're going to head on this path