Data Center Demand Fuels Growth for URI, APO, BX and CG

**SPEAKER_1** (0:00)
What have you made of these earnings? And I point to the head scratcher that is Datadog, doing a big downward dog today. And the reaction we've seen obviously in names like Western Digital, I mean, I know we like to find a reason for it, but these were good numbers. Do these reactions tell us more something about the positioning here in this market, do you think?

**Jed Ellerbroek** (0:26)
Yeah, that's a great question. I think it does say more about the inherent volatility, the single stock volatility that is present in markets today. We're coming off an all time momentum rally with Semiconductor and Data Center CapEx beneficiaries leading the market in the second quarter, followed by a really sharp three week reversal in July. And then this kind of like earnings related bounce here in the last week and a half, led mostly by the big tech hyperscalers. So really dramatic volatility in your prior segment. You talked about, yes, data dog down double digits today, but up 50 or 60 percent year to date.
Same thing with AMD, I think was mentioned. So yeah, it's hard to take away too much from a one day earnings reaction these days. Better to zoom out a little bit if you can.

**SPEAKER_3** (1:18)
And Jed, you said something really interesting in your notes here because we keep having these conversations about if we've reached peak spending, just in seeing how some companies were met with some punishment for having their number be what the street felt was too high, or perhaps not returning enough on that number. You are saying that 2027 capex could grow potentially another 50 percent from these record levels that were already at. I mean, Sam and I are regularly looking for typos sometimes when the numbers come across. So what is driving that confidence?

**Jed Ellerbroek** (1:50)
The revenue growth and the margins that the big cloud computing companies are able to earn on the Nvidia chips that they are installing right here and right now. When you look at Google's earnings and Amazon's earnings and even Microsoft here this quarter, these companies are earning really high returns on the data center capacity that they are bringing online today. Their customers are asking for more. They're signing three and five year contracts for more computing capacity. And so the big tech companies, those big spenders, those big data center builders are racing to construct more of these facilities. And that's going to continue, I think, for years.
We are nowhere near peak data center capex spending. What we are, the peak we are approaching is that peak growth rate in year over year spending.
The growth rate this year, if you take the big four, which includes Google, Amazon, Meta, and Microsoft, about 75% growth. This year, that matches last year, 75% growth. I think that growth rate is going to downtick next year to something like 50%, as you said.
Investors care a lot about that year over year growth. And so a deceleration, coming in 2027, I'm eager to see how investors kind of digest that and trade those stocks here over the upcoming year.

**SPEAKER_1** (3:08)
How are you, Jed, looking at the trickle down economics of all this capex, all this spending, because it's been fascinating, obviously, watching even the ISM manufacturing PMI, which came through this week with the employment gauge picking up for the first time in three years, almost. I mean, no doubt that is a function of some of the buildout that we're seeing, that we haven't seen in many of our lifetimes. I'm just wondering what sectors you're looking at, what other parts of the market really stand to benefit as an opportunity from all of that, beyond those that are spending and those beneficiaries, like the bottlenecks, the memory players?

**Jed Ellerbroek** (3:45)
Yeah, that's a great question. There are so many trickle down impacts. Let me just give you two examples. First, United Rentals, which is the largest company in the equipment rental industry. So like heavy non-residential equipment, like earth moving equipment, aerial lift equipment, that industry has really struggled for the last couple of years.
It struggled largely because interest rates rose in 2023, and that caused construction companies and businesses to pull back on construction spending with higher interest rates.
That hurt the pricing power of those equipment rental companies in 2024 and 2025 But today, that pricing power has come back. There's actually a shortage of some of this equipment because the data center boom has just soaked up all that excess capacity. So if you want to rent equipment today, it's going to cost you more this year than it did last year. The main reason why is because data center spending has just grown so much and United Rentals and its industry peers are now growing pretty rapidly after a couple of tough years in a row. Second example, credit growth, loan growth in America. The alternative investment management companies, Apollo, Blackstone, Carlyle, et cetera, their credit businesses are growing much faster today than they were a couple of years ago. That's because all these data centers are being built with 70 percent loan to value type funding. So that demand for credit, the demand for lending is growing rapidly. Much faster than it has in prior years. That's actually causing credit spreads to expand a little bit. More loans and more profitability for those lenders.