Kinda Spooky: META, AI, TSLA

Michael Lewis discusses his book *The Big Short*, focusing on themes of betting against the market and the consequences of an unchecked financial system. Matt Levine and Katie Greifeld share their Halloween plans, with Katie excited about the festive atmosphere in Hoboken. They introduce the Money Stuff Podcast, which covers financial topics, particularly tech earnings and the significant spending on AI infrastructure by major tech companies.

Katie notes that while these companies have funded their ambitions through free cash flow, they are increasingly turning to the bond markets. Matt highlights Meta's strong credit rating, which allows it to borrow, but warns against over-reliance on the bond market. They discuss Meta's financing strategy, aiming for over $25 billion through a joint venture with Blue Owl, allowing Meta to package financing into bonds without affecting its accounting or credit ratings.

The conversation delves into the complexity of categorizing financial instruments as debt, with the bonds for the Hyperion data center priced at nearly 6.6%, higher than Meta's corporate bonds. They note that while these bonds are perceived as backed by Meta, they have structural features that make them less favorable than Meta's direct debt. The discussion also touches on project finance, gaining attention with examples like Keurig Dr. Pepper using joint ventures to maintain credit ratings while financing acquisitions.

They highlight the recent oversubscription of Meta's $25 billion bond issuance, indicating strong market interest, and reflect on the shift in tech investment dynamics from capital-light models to more capital-intensive structures. Meta's evolution is noted, particularly its shift from low marginal costs to significant infrastructure investments, including data centers. Concerns are raised about Mark Zuckerberg's heavy investment in the metaverse, questioning its viability and purpose. Insights from Zuckerberg's recent earnings call reveal that Meta has options if infrastructure spending becomes excessive, including utilizing excess capacity for its core business. The Reality Labs division reported a significant loss of $4.4 billion in Q3 with minimal revenue.

They mention OpenAI's potential IPO in the next two years and how Elon Musk's current distractions may impact ongoing legal matters related to the company. One participant expresses urgency regarding the potential IPOs of large private tech companies, suggesting that a specific company could benefit from going public to meet its capital needs. Another participant highlights the company's commitment to $1.4 trillion in spending and questions the sources of funding, indicating that an IPO could be a viable solution.

The company is characterized by its unique structure, being a for-profit entity governed by a nonprofit board with super voting rights. There is skepticism about how this structure will impact an IPO, particularly regarding investor concerns about the company's profit-driven motives. Questions arise about the board's operational control, especially after a past incident where Sam Altman was fired for mission-related reasons, only to have the decision reversed quickly.

The conversation also touches on the blending of private and public markets for funding, with speculation that the company may consider going public by 2027. Current funding strategies rely on promises of future capital raising. Elon Musk's influence over Tesla is discussed, including the board's advocacy for his controversial pay package, which could potentially grant him a significant stake in the company. The framing of Musk's compensation as a trillion-dollar deal is critiqued, clarifying that it is not an immediate payout.

Musk's desire to maintain control over Tesla's voting power is noted, as he seeks to avoid being ousted by shareholders. The board is exploring options for granting him super voting shares but faces implementation challenges. They also consider internal candidates for CEO in the event of Musk's departure, with Tom Zhu being highlighted as a capable successor. The likelihood of shareholders approving Musk's pay package is discussed, with a significant portion of the investor base being retail shareholders likely to support him.