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Look, the American economy is on a bit of an upswing right now. These are good times, you know, corporate profits have increased significantly. And the good news is that I don't like to make assumptions about the economy. I like to analyze the factors that drive it, and then you can assess the probabilities.
Corporations do not have excessive debt burdens. Consumers also do not have excessive debt. Unemployment is very low. It is debatable whether wages are rising enough for the poorest, probably not, but they have jobs. And that's the single most important thing for most people— to have a job and the opportunity to work .
And most people, contrary to what you hear, like their jobs. There is a steady demand for capital in all segments of the economy. You know, every quarter when I'm here, I talk about the impressive nature of the U.S. capital markets. And we see more and more of the economy going through the US capital markets .
I mean, even yesterday we announced a big deal with Humana. Uh, you know, in the field of elderly care . Last week we announced a very big deal with AT&T. I know that everything related to artificial intelligence and data centers is exciting, and we want to talk about it . But more and more organizations are coming to the capital markets.
BlackRock is at the center of these conversations. You know, I like to say about our quarter and year: markets drive our assets, but our customers drive our growth. And, you know, our growth this quarter: if you remember, the US stock market was flat in the third quarter, bonds were down 3%, and we were up 205 billion.
So, we see more and more companies approaching us for funding, and that's the trend we're seeing. But let me take a step back, because I keep saying this. Yes, we are now at the stage where we are starting to open up private equity. Jim, you and I are constantly shouting about this , shouting about opening up private markets, opening up this sector.
But at the same time, the US budget deficit, which we don't talk about enough, is starting to have a serious impact. You know, we've come a long way from $8 trillion in national debt in 2000, accumulated over 223 years. And national debt, I mean national debt, not deficit. Yes. The national debt is now 40 trillion.
We have grown by $32 trillion in 26 years. So, let's talk about this as a huge impact on the demand for loanable funds. Our government needs more and more loans. Bond auctions are becoming larger and larger. At the same time, I already said, I think, last quarter, that we need to attract private capital to grow the US economy by 3%.
You have, in essence, the largest pool of capital in the world. I have also noticed that more and more international investors are coming to invest in the US. But, Larry, there is a concern that what is driving a lot of our economy and our markets right now is that this capital spending... that it's not enough.
Right. Capital expenditure rates, which we have never seen before in our careers, remain low. Two-thirds of our economy is moving ... How about this idea that there might be a capital shortage? That some firms, maybe smaller than yours but still very large, are saying, "You know what?" "I've already exhausted my data center funding limits." And this can become a limitation.
That's why I'm saying that we have to open up new ways to finance this. You know, as kids, Walter and I started in 1976 . I was doing something called mortgage debt, which no one had ever heard of. We started it, and back then it was, you know , a few billion dollars. Now it is 15 trillion. Two phases of the quarter.
There was a lively July and August, as you said, and September changed the equation because of inflation, higher rates and oil. Do you expect the fourth quarter to be more like the beginning of the third quarter or the end of it? Well, that's a great question, isn't it? Two of the known unknowns this year were the phenomenon of AI and geopolitics.
And it seems like the lights just went out, but we're continuing, right? But they came back. Here we are. Okay, the glass is half full. The interaction of the phenomenon of AI and geopolitics has been a dominant reality throughout the year. And what we saw last quarter, actually in two quarters, as you say, the first quarter was risk-oriented.
The AI phenomenon stimulates GDP growth by 5-6%. The economy continues to grow at full employment. The Fed is focused on inflation expectations. The mood is positive. And then, as Labor Day approached, people started asking about the pace at which capital spending would be done. Are interest rates and inflation higher, more persistent, and such that they actually indicate some additional risk to the economy?
Well, and of course, geopolitics plays a role. So these are actually two very different stories. And I would like to think that we will have the first scenario, a positive one, if we can at least take some control of geopolitics . If the geopolitical situation stabilizes somewhat, I think a lot of things will return to the positive aspect, namely—that the AI phenomenon is real.
The economy continues to grow because of this. Inflation is under control. Corporate profits are excellent. So I'm cautiously optimistic about the fourth quarter. Where I am more optimistic is regarding Morgan Stanley's role in this process. Because we act as the primary advisor to clients, both in wealth management and investment banking, and in markets where we are very busy.
I want to ask about the AI supercycle because, as you mentioned, it has become critically important both in terms of sentiment and for Morgan Stanley's business. During last quarter's report, you said that we were only 10-15 % through this cycle. Since then, we have seen greater political opposition to data centers.
We saw higher interest rates, as you mentioned. And we see big players slowing down their own development due to security concerns. Have your expectations changed given these obstacles? I mean the longevity of this supercycle and the ability to profit from it. You are asking the right question. We must accept the assumption that the AI supercycle is a phenomenon that occurs once every generation, or even once every few generations.
And we at Morgan Stanley believe that this is so. So the question is, at what rate will hyperscaler capital expenditures roll out? Is that a trillion a year? Is it one and two trillion a year? Will it take eight or ten years? Will it be 12 trillion or 15 trillion? These are huge numbers, but over time, I think this is the reality: if you want to be in the game and win, you have to invest large amounts.
And a significant portion of these flows are directed to the companies with the best capital and the largest cash flows in the world. And our role is to act as an intermediary, helping to structure private and public funds, debts, and shares. Leslie, I think, without a doubt, the AI investment cycle is here .
How long does it take to implement, will investments sometimes outpace technology, or vice versa? Certainly. This is the case with any phenomenon that happens once in a generation or even less often. But for efficiency, productivity, and sustainability, the digital sphere is already here. And I think it's critical that Morgan Stanley be part of this as a trusted advisor.
Therefore, we doubled our share in this direction. And it doesn't matter whether hyperscaler capital expenditures are a trillion next year, a trillion two hundred billion or 900 billion, what matters is where we're headed. Where we're headed is probably in the long term, depending on how you measure it, between 10 and 15 trillion, which is a big number compared to the S&P of 7 or 8 trillion.
But it's worth remembering that this provides, perhaps, 50 basis points of real growth in the US economy, as you know. So, it's real, and we believe it will last. the new AI in the stock market . Something unusual is happening in the AI market . Investors are concerned about this. They question the costs of data centers, and some wonder if companies have already built too much AI infrastructure.
But at the same time, big tech companies continue to compete for more computing power. SpaceX reported explosive revenue growth. Amazon says demand for cloud capacity remains difficult to meet. In addition, the next generation of AI systems is becoming closer to the consumer. So, what story is the market missing?
Are we nearing the end of the AI boom, or are we witnessing the early stages of a much larger computing industry? Let's start with SpaceX, as it's a fresh result that offers an interesting look at where the AI market might be headed. SpaceX is becoming a bigger player in the AI space. SpaceX reported quarterly revenue of approximately $14.6 billion, up 161% from the same period a year ago.
This was significantly higher than the market's expected figure of about $12.7 billion . Its satellite internet business, Starlink , has shown strong results. Its space business has also exceeded expectations. But the segment that has attracted the most attention is its AI computing business, now called the superintelligence segment.
This business generated about $7.56 billion in revenue for the quarter. According to the report, the company also reported adjusted EBITDA of about $8.8 billion . This figure shows why investors are paying more attention to SpaceX's computing plans. It doesn't just launch rockets and build satellites.
It also works to provide the computing resources needed to run advanced AI systems. And we are right in the middle of this opportunity. SpaceX has committed to using Nvidia's platform for its future computing infrastructure. If the company expands as planned, it could become an increasingly important source of demand for AI chips.
But the most ambitious part of this story is what happens next. During a revenue discussion, Elon Musk said his SpaceX aims to reach about $100 billion in annual revenue by December. He also outlined a potential path to annual revenue of between $500 billion and $1 trillion by the end of 2027. And this is the real goal of the owner.
This is also a management forecast, not a result that has already been achieved. Its achievement will depend on execution, customer demand, infrastructure expansion, and the company's ability to convert planned capacity into a profitable business. Still, the scale of ambition suggests something important.
Some of the biggest players in technology believe that the demand for computing for AI could grow significantly in the future. The next " bottleneck" is electricity. This is where the story gets interesting. For a long time, conversations about AI focused mostly on chips. Will AI be able to produce enough GPUs?
Will manufacturers be able to supply enough components? Will advanced chip factories keep up with orders? Now the industry faces another challenge— energy. A company can purchase thousands of advanced GPUs, but they won't bring in revenue until the entire data center is up and running. This means that electricity , cooling, networks, buildings, and other equipment must be in one place.
SpaceX management emphasized these challenges when discussing its expansion plan. Musk said the company plans to gain about 10 gigawatts of additional computing power by 2027. He also discussed a more ambitious scenario involving 20 gigawatts of additional power and cooling. The largest goal, according to his comments, will be difficult to achieve, but even a 10 gigawatt plan would represent a significant expansion.
Why should AI investors care? Because every new data center needs equipment, and if companies are delayed due to a lack of energy rather than a lack of customers, demand for chips could remain high even if installation takes longer than expected. And that's a completely different problem than having too much equipment and not enough people willing to use it.
Are unused Nvidia GPUs a red flag? The Amazon report raised concerns that some Nvidia systems were delivered before certain facilities had enough electricity to operate them. In simple terms: some of the equipment was ready before the infrastructure around it. This has led to discussions about so-called "dark" GPUs, meaning those that have n't even been enabled yet.
At first glance, this sounds like a serious problem. After all, why would a company spend billions on computing equipment that can't be used immediately? The answer depends on what exactly is causing the delay. Imagine a company building a huge data center. Servers arrive in October, and electrical equipment becomes available in November.
The company's system is being completed in December. Servers may be idle for some time, even if the company already has customers waiting for computing power. And this creates a problem with timing. But this does not necessarily indicate a demand problem. Of course, delays still cost money. Equipment may depreciate, financing costs continue, and revenue may arrive later than planned.
Investors should not ignore these risks. But they also shouldn't consider every unused GPU as evidence of an AI "bubble ." The critical question is whether the equipment will be operational and generate sufficient revenue once the supporting infrastructure is ready. If so, the delay may be temporary. If not, investors will have to consider a much more serious problem.
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