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in the last say four or five sessions is down almost a clean 20%. Right? I think now down about 40% from its recent high. Clearly there is opportunity here for management to level set the expectations around debt financing just how much it's planning to raise. Uh according to a credit investor I spoke to on Friday.
The expectation is that this is a company that needs to go to the debt market sooner than expected because the latest 10Q did show a substantial rise in data center leases, which again resurrects this whole question around financing. Well, folks, Oracle bonds are falling off a cliff. And this is a really big red flag because it means the money printing Jerome Powell is doing might just be pushing against a string.
Now, we'll look at the fundamentals and we'll see what's actually going on because that's what we like to do on the channel here is talk about what's actually happening by looking at the financials. But this morning, I took out this cable. And the reason I took out this cabls to provide an analogy. I said on Friday, mind you, I said that I expect chip selling and hardware selling to continue.
And this morning markets were green. And I'm like, guys, this we do this before the market opens up, right? like guys the like don't trust the pre-market going green this hardware selling could keep going rapidly and it's exactly what we've seen cororeweave NBIS all of them falling off a cliff but remember the Fed printing money is in part designed to prop up money for private credit so if private credit gets propped up it funds banks who can then fund the bonds for companies like Oracle the problem is what you're about to see we have big problems okay so understand for a moment when The Fed prints money.
Their goal is to take this oracle side of the cable over here, call my hand over here, the Oracle side of the cable, and they're like, "Guys, pump pump." They're pushing money in, and they're trying to be really aggressive over here. But as you could see, that Oracle side isn't moving that much. And then you get dummies sometimes in the comments like, "But Kevin, like somebody literally wrote this comment the other day, like, Kevin, all of Private Credit could literally implode this weekend and it wouldn't be a black swan." And I'm like, you don't even know what you don't even know.
Like, you're so dumb. You don't even realize how stupid that comment is. Private credit is a $3.5 trillion industry. Okay? Our GDP is $25 trillion. So, if I take three and a half and I divide that into 25 nominally, private credit makes up 14% of the economy. Now, add leverage. Yeah. Okay. It's a really, really big problem.
So private credit issues are an issue and the issue that we see with Oracle is as a downstream recipient of private credit funding, Oracle bonds are falling off a cliff. Now unfortunately when Bond Primis, this was shared on uh X, shout out to uh special situations. I was chatting with him on X this weekend.
Uh and you know he's making the argument he posted these and he's like Kevin the problem is when the 5-year bond and the 10-year bond for Oracle start falling off a cliff. This right here is the uh 10-year bond for Oracle. When they start falling off a cliff, what it means is the market is demanding a higher premium for these bonds.
Okay, that's a fancy way of basically saying people don't want this debt. They need to be compensated more for the risk. And that's bad because unfortunately it means they're going to have less capacity to pick up money from Wall Street. Those are selling at a 5% discount on the 10-year. You want to see the 30-year?
This is the 30-year for Oracle. The 30-year for Oracle, which is right here, 2055 expiration. It is selling at an 11 and a half% discount because people do not want to bag hold these assets. And this means even though the Fed is trying to bail them out, it may not actually be enough to make it happen, which is scary.
Now, I put this together, which is Oracle CDS's. Now, this is something else that's scary. Okay, if you go back to 2008, all the way to the left side, 2008, which I don't have charted, but you'll see that these CDS's peak out at about 128. Well, right now the CDS's, you ready for this? We ended up uh crossing the 128 line over here last week, and then all of a sudden, we just shot up even more.
We're at 148 right now on Oracle 5-year credit default swaps. They're mooning. this hedging that's going on against Oracle is mooning right now. And so on Friday's alpha report, I said, "Expect the chip sell off to continue." Monday morning, I said, "Don't trust the pre-market green hardware sell off to continue." Uh, and then of course, we're seeing premiums fall for these.
The problem with premiums uh collapsing for these bonds and the bonds selling at a discount is that you basically and this is what special situations and I were talking about is basically Oracle is going to have to pay more in interest to compensate people for the extra risk. Unfortunately that means they have to take on more expensive debt to justify their existence.
The problem is Oracle is legitimately telling you that they're so broke that you should bring your own chips. I mean, think about this. If you go to some rich guy's house for a Christmas party, is that rich, really wealthy person going to tell you to bring your own beer? No. BYOB is when you've got normal, hardworking Americans who just can't afford the luxury of paying for alcohol for everyone.
And that's normal, okay? But the rich guy inviting you over doesn't ask you to bring your own beer. Okay? When you start getting a little tight, that's when you ask people to bring their own beer. Okay? And it's fine. It's reasonable. Like, don't be a freeloader. Bring your own beer. Right? But when a rich company like Oracle starts saying it, it might be a problem because that's literally what they're saying.
Okay? If you go to the earnings call on Oracle, and this is crazy. I I like I my mind was blown when I saw a rich company like Oracle saying this in terms of funding our growth. There are a variety of sources available to us through our debt structure in public bond bank and private debt markets. Do you see what I'm saying here?
And and I haven't even gotten to the zinger yet here, but listen to what they're saying. We have money available through private bond market which is collapsing. We just saw the charts. It's collapsing. bank and private debt markets. Oh, you mean the ones that the the blind people are going, "H, private debt market doesn't matter." No, it literally does.
It literally matters because even Oracle is referencing it. And then in addition to the public bond market, which is tanking, credit default swaps, which are indicating massive risk, and the private debt market, which is panicking right now, and the Fed is trying to bail it out. In addition to all of that happening, they say, "Oh, by the way, we also have other financing options through customers that may bring their own chips to be installed in our data centers." Wow, what a party host.
Oracle is literally now saying, "Bring your own chips so that way we don't have to buy them." They actually get asked about this again later in the earnings call. I like I wish I was making this up, but you can't. You have an analyst that says, "Hey, congratulations, blah, blah, blah. Hey, uh question uh Clay or Doug.
Uh Oracle is clearly the destination of choice for sophisticated AI customers. Got to prop them up before you ask the hard question, right? That's always if you ever have to ask a hard question, learn about framing, right? Oh, Donald Trump, you're so great. You're the best ever. Hey, just wondering, you know, how come things aren't going so great with Putin?
By the way, love what you're doing on Truth Social. You know, it's all about framing, right? It's a manipulation, right? So anyway, uh but this is far more capital inensive unlike any business Oracle has ever been in before. Uh how do you guys raise the funds for this AI growth ahead? Mind you, at the same time, you've got this plummeting going on in the bond market.
So basically in English, hey guys, this is expensive. Okay, you ready for this? All right, here we go. One of them is that customers can actually bring their own chips. In these models, Oracle obviously doesn't have to incur any capital expenditures upfront for that model, aka don't worry, bring your own chips.
Uh so then they try to sell that as we're uh chip agnostic and my translation is Nabro. We just can't finance this anymore and the bond market is pissed. So now uh what I wrote over here, well, let's get into their fundamentals. What else did I write here? Oh, I did I do have this quote that I've had in my alpha reports since September October.
I've had in my alpha reports at the bottom that Cororeweave, Enbis, Oracle, and Iron have the writing on the wall that these will be bag holding companies. This is a direct quote from my alpha reports that have been, you know, published for like three or four months. So, you know, I'm not trying to shill anything.
I'm just simply trying to say like if you go back to the day charts on these these companies are roundt tripping literally since I wrote these notes in September and October that's when you got your double top on NBIS that's when you peaked out uh or nearly you had your second essential peak out over here on Coreweave uh after their IPO and that's when you've double peaked out on Iron all of them now selling off substantially 9% in the day on Iron 6% on Cororeweave 7% on on NBIS and So, this writing is clearly on the wall that these are the bag holding companies.
You know, Oracle's down another 2.8%. Uh, Broadcom's down another 4.5%. The writing's been on the wall, but take a look at the finances because maybe you don't believe that the bond market is telling you a warning, right? The bond market is screaming, "This is a problem." Kevin has been screaming in the alpha reports, "This is a problem." I've also been screaming that the Federal Reserve is trying to bail them out, but they're pushing against the string and it's it's not working right.
So I that's why I think this analogy is useful. Like they're trying but they just started Friday. They just started running the money printer on Friday. So it might be early like maybe the bailout will start working. But understand this. Go to the financials for Oracle. Okay. The financials for Oracle show that their plant property and equipment sit at $67 billion.
67. So, of course, their earnings per share are going up because they're buying actual data center equipment. Fine. But the question is, where do they get that money from? Right now, they have $136 billion of debt. $136 billion of debt works out to 7 years of operating cash flow that these company that these people like if they stopped spending today, it would take them seven years to pay off their debt.
That's a That's an eternity. That's a whole chip life cycle. It's probably more than that. But anyway, if you actually go to their net operating activities, you could find that they are in a six-month period losing well, they're burning $10 billion in free cash flow, which means they have to borrow money.
And that's exactly what they're doing on their cash flow statement. You could see they've borrowed $18 billion. They paid a little bit uh $2.8 billion in dividends, so about 15% of that. Then they issued stock about 5% of that and they paid off a little bit of debt about 10ish 12-ish% of that. But they've net borrowed massive amounts of money.
They have net borrowed and issued $19.3 billion less than 2.8 in dividends, less than 2.1 in debt payoff. They have net issued $14.4 billion, which is 140% of their negative free cash flow. They are literally borrowing. So, they're borrowing every freaking penny to finance their their capital expans the expansion of their data centers.
Now, I looked and I go, but hey, like Wall Street is forecasting that they're going to have net income of $60 billion a year in 2030. Okay, that's cute because if they had $60 billion a year of net income in 2030 and they stopped borrowing, they could pay off their debt in like 2 years. In less than 2 and 1/2 years, they could pay off all of their debt.
But the problem is to get to $60 billion of net income. We looked it up together. We finally found what Wall Street is forecasting for their plant property and equipment growth. Right here, this is the line. Wall Street is forecasting that the 67 billion dollars that they have in data centers right now is actually going to rise to 86 next year, 136 and 27, 191 and 28, 241 and 29, 272 by 2030.
So in order to actually get $60 billion a year of net income, they're going to have to borrow another $25 billion. That's why the bond market is freaking out. That's why the bond market is falling off a cliff because the bond market is like, "Bro, you guys have 67 billion of data center exposure right now.
How in the world are you going to get another $25 billion when right now you're having to borrow at 140% of your free cash flow? You're having to borrow more than your negative free cash flow just to sustain this business. At the same time, you're trying to sell to people, hey guys, um, yeah, bring your own chips, boys.
Well, if people start bringing their own chips, guess what happens? Your EPS forecasts go down even more. That's the problem. Now, yes, on a valuation basis, they don't seem that expensive right now, but that's because the valuations assume the growth that Wall Street is forecasting. So if you use a price to earnings growth multiple, this company's trading for like a 08 on a PEG ratio, which is very cheap.
But you have to understand the PEG ratio has the G in the denominator. In English, if the growth goes down, the whole formula gets ruined and they look really, really expensive. And the bond market is telling you poop's not doing really well. So it's no surprise this hardware selloff is continuing. Now if you actually look at their their fundamental earnings, you can also see that PP is compressing at least somewhat.
Okay, so cloud margins used to be gross cloud margins used to be 77%. But they've actually compressed to 71.2%. So they actually have shrinking pee pee, little pee pee. And nobody wants shrinking pee pee. So at the same time, you have shrinking pee pee. At the same time you're telling people to bring their own ships.
At the same time the bond market is selling off risk on this company. You have a company that's saying oh we can rely on the private credit markets on the bond market. People are going really I don't think so. And henceforth we see the chip market dunking coreweave, iron, nbby, Oracle, Broadcom. Now that's obviously taking, you know, the market down with it to some extent.
I mean, we were green like 70 basis points this morning on the cues. Uh, again, this isn't to to shill the alpha membership. It's just to say we were green this morning on the cues. And I'm like, that's great, but like watch the first five minutes because I wouldn't be surprised if we see the chip selloff continue as people rotate out of hardware.
The pre-market doesn't matter. What matters is what institutions are doing. And institutions don't see these issues lightening up. Look at the JP Morgan call. So, if you go and JP Morgan's not my favorite, you'll know that. But you can still see what their credit analysts are saying, and they obviously throw money around.
Look at this. Oracle is a show me story after big debt bet. JP Morgan says JP Morgan expects the company's bond pressure will persist into the next year, which isn't great. Uh on top of that, you've got uh you know, the only people who are really bullish on them are MLY Fool. And I know there are a lot of people who aren't really enthused about the mly fool, but the mly fool is like, "Hey, there might be some big uh speed bumps ahead, but uh as long as you can weather this, maybe uh and you believe they're making the right long-term move, maybe you can pull this off as a high conviction buy." That's cute.
But that's also where we just have to ask ourselves, how many data centers do we need for the same freaking models? Okay. Well, if we keep getting improvements in artificial intelligence, maybe this is all just a hiccup in the road. You know, maybe the funding will come through. This is the bullcase, right?
The bull case is the Federal Reserve is able to print money. It supports the private credit wos. The private credit woes go away. Private credit ends up with a lot of liquidity and cash. The liquidity crisis ends because the Federal Reserve is printing money again. Private credit then goes and funds the Oracle data center expansion.
And we need more data centers because AI keeps getting more and more powerful, powerful, powerful. Great. That's the bullcase scenario. I mean, I know there are bullcase scenarios for artificial intelligence. We don't actually need a lot of data center capacity for our like productivity and net worth boosting AI that we do at my startup.
That's househack.com. Uh, reinvest.co. Same company. We just raised, you know, we announced that we're closing the fund raise at the end of the year. We raised $940,000 in effectively the two business days after uh we announced that close, which is awesome. Like, you know, people are plowing money in which is great.
We're going to put it to great use. So like there are winners in AI and I think like we're part of that. I mean I I'm grateful to say knock on wood that like we're EPS profitable with this giant boost that we got from artificial intelligence of people buying our product or our service. But anyway like there will be winners in AI and there will also be losers.
But the problem is a lot of this data center explosion is leading a lot of people to get really optimistic about things that could be these really crazy long shots. Like frankly, not only Oracle, but also if you haven't seen it yet, I encourage you watch my SpaceX video. So I made a SpaceX video uh about the next 10X in in uh data centers or whatever.
And if you jump in over here, the next 10x in stocks, Elon Musk, you can watch that video and I talk about the SpaceX IPO, but we talk about specifically data centers in space, how people are talking about this. We talk about the SpaceX valuation. We talk about the Terminator zone, basically 247 cooling, which is great uh in in space, but I'm sorry, uh uh power 24/7 power in space.
But people think that space cooling of chips will be useful, but you actually introduce new problems. You don't have air flow in space and you need like ammonia based cooling which is very damaging for humans. So you need robots to be able to really service the equipment which maybe is good for Optimus robots if we can make it there.
But the question is all this hype around data centers in space. Is it being hyped up to help Elon Musk sell SpaceX stock or do we actually need the data centers? See, one of the big downsides of SpaceX that people complain about is, "Hey, yes, Starlink is great, but do we actually need to send a lot of cheap payloads to space?" And there's competition for these payloads as well.
China's working on their reusable rocket, obviously copying Elon. Uh Jeff Bezos and Blue Origin just successfully landed their reusable rocket. Obviously copying Elon. GPS technology has gotten really good, right? This is like, have you ever done a drone like return to home? It's kind of the same GPS technology just on a much larger scale.
But anyway, uh it's not to downplay what they're doing, but the point is like the biggest objection to SpaceX investments have been well, what are we actually going to send to space when we can make all these trips to space? What about data centers? Great, great sales pitch. Everybody be like, "Oh, that's a great idea." As long as the data center boom doesn't go bust.
And right now, we're at a really precarious turning point where we're not sure if the Federal Reserve's money printing is going to be enough to support private credit, to support the bond market, to support Oracle, and support this continued data center expansion. So Oracle should really be an oracle of bad things to come if this Fed money printing doesn't work in bailout.
So this is scary that that is a very big problem. So anyway, um it's also possible that banks are just hedging against data centers, right? Maybe that's why the CAS's are going up. But you need to raise debt to get their earnings to actually continuously prove that this company's expansion plans are going to survive.
Now again, valuation wise, they actually seem dirt cheap. But if for whatever reason our data center needs collapse, all of these investments go poopy dupy. And that is the big fear is that Oracle investments go poopy dupy. That means I ren go poopy dupy. If they go poopy dupy, then Nvidia and AMD go poopy dupy.
Google TPU nobody cares about anymore and all these custom chips go poopies and then we don't need data centers in space at least for the foreseeable futures future. That's the big risk factor and I think that's what markets are really worried about right now. And then people look and go, "Oh, I guess it was in hindsight it was all a bubble after all." Right?
So anyway, that's the situation. So he says, "Data center under the ocean free cooling." Yeah. Hey, you know, there are a lot of different ideas for where to put the data centers. The the the wild thing is there's also plenty of land on Earth and we have planned out a whole lot of data centers already.
And the question is, is it a sustainable level of spend? And what most experts seem to point out when it comes to studying history, so history experts, is that you really can't have a new revolution, like a new industrial revolution without a bubble. So it's not a matter of like will there be a bubble anytime there is a change in an industrial revolution whether it's cars or radios or data centers there will always be overinvestment because capitalism is in part fueled by optimism and hope uh and that leads to overinvestment over capitalization and uh every single technological revolution ends in a bubble.
The big question that people have right now is well are we in a bubble now or are we going into the bubble? JP Morgan, Goldman Sachs, and um Morgan Stanley. All of them argue that we are actually not in a bubble yet. That we are going into the bubble. Unfortunately, the one thing that's creating cause for concern is the skyrocketing of credit default swaps at Oracle, the plummeting of premiums on Oracle bonds.
Uh and you can't forget the 102 spread. The 102 spread is another issue. Remember this was the uh the chart of the uh 30 uh the 10-year and the 30-year bond for Oracle. But then, you know, you factor into this as well what you have with the 102 yield curve over here now at 67 as well. Exactly the same number as how much Oracle has in plant property and equipment.
67 billion. Just 67's just everywhere right now. Uh but the question is, is this a signal of greater shock sensitivity coming? So, we'll see. Maybe we're just in the expansion phase. My hope is that the Federal Reserve's money printing bails us out, but um that's where we stannd always great to get your take.
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