Catalyst Watch
Staying Out of the Rough
Welcome to Catalyst Watch at The Transcript, a report for paid subscribers that highlights investment themes from this week’s newsletter.
1. Tech Companies are Testing the Limits of Capital Markets
It’s well understood that tech companies are spending unprecedented amounts of capital to keep up with AI demand. Alphabet’s $80B equity fundraise last week underscored just how much money is required.
Alphabet is the most profitable company in the world on a TTM basis, has $126B in cash on its balance sheet, and generated $164B in operating cash flow last year, but is planning to spend $180-$190B in capex in 2026. The scale of capex is enormous even for Alphabet, hence the fundraise.
The fact that Alphabet came to equity markets for funding is an indicator that debt markets aren’t big enough on their own to support the capital needs of the industry. This sentiment was voiced last week by Apollo’s president:
“The amount of companies that are looking for large-scale solutions that they can get done in the IG market, in the bank market and private credit. None of those markets are big enough on their own to solve all these problems. And I think there’s a greater awakening that the CapEx needs are so great, it’s a combination of those things.” - Apollo Global Management (APO 0.00%↑) President James Zelter
