Why Google Needs $80 Billion

追加: 2026-06-03

[00:00:00]Google is raising $80 billion in equity.

[00:00:02]The company said yesterday to invest in AI infrastructure and resources for compute. The stock has been down on the news. I want to bring on CJ Gustafson, founder of Mostly Media to help us break it all down. CJ, welcome back to the show. It's great to have you here.

[00:00:18]>> Great to see it. Okay. $80 billion in equity is what Google says it wants to raise. Investors don't seem to like it.

[00:00:27]What does CJ think of it? Well, if you take a step back, if you want to buy something, in this case, compute, you really have three options. Aos, you can use cash you generate from your business. And Google has quite literally the best cash generation machine in the world, maybe in the history of business, which is ads. And this produces about 46 billion in operating cash flow per quarter, so every 3 months. But 36 of that 46 gets plowed back into capex to go and buy more compute. And so that leaves 10 billion in free cash flow that they can do whatever they want with it.

[00:01:00]So more mature companies may grant dividends um or they may just keep it for a rainy day in their bank account.

[00:01:06]And so the next option is debt. You can only take on so much debt. They've issued a ton of corporate bonds and don't want to get the debt to equity ratio so high that it actually hurts the rating on those pristine bonds. And the third is equity or selling a portion of yourself. And this dilutes the current shareholders um who now own a smaller chunk. But the idea is that you're doing it to make the entire pie worth more via whatever you're funding. So you're just seeing this balancing act in the capital markets between these three levers. And Google doesn't want to overweight the debt portion, but they also don't want to run out of cash.

[00:01:43]>> So I mean you look you write uh every week from the perspect you write for an audience of CFOs. you take the perspective of a CFO as someone who studies the calculus uh of these decision makers. I mean, you think it's a good move. I think it's just what they have to do at this point. You have to use every lever at your disposal. And it's like truly unprecedented how much this is as an add-on offering post IPO cuz usually you you will dilute your shareholders when you're still private, right? because a you really can't tap into the debt markets as much. But um I was looking at the numbers this morning akos and um the number two largest uh like follow on equity raise of all time was Boeing back in 2024. They raised about 24 billion and before that it was Bank of America which was in 2008 and we all know why that happened and that was for just under 20 billion. So this is like a number that dwarfs every other.

[00:02:44]So like from a capital um capital markets perspective and like a resource allocation perspective it makes sense.

[00:02:52]It's more just I think like for like uh if you go back to the primaries of it like is is this the right decision for the company overall?

[00:03:00]So tell me about you know do you think other tech companies will follow suit here with uh with equity raises?

[00:03:10]I mean, it opens the door because if you look at what Google is doing, their market cap is over 4 trillion, right?

[00:03:16]They're basically weaponizing that 4 trillion um to go out and fund these builds. So, I would say only companies that have a really uh chunky valuation and are able to use their float to to do so. But um they're they're kind of like only one out of a couple who have a a market cap large enough to sustain this.

[00:03:40]And we already saw this stock go down already, but at least they're up a good amount on the air, >> right? I want to ask you about the other uh big news that came yesterday. So Anthropic uh confidentially filed to go public. It's always funny when they say we've confidentially filed. You know, the details are confidential, but the filing itself is they came out very loud about it. Um, you know, the the language, I guess, in this press release seemed to suggest that they wanted to get the things started, but they're sort of undecided when they actually will go public. It's, you know, our co-executive editor Martin Piers made the point last night in his newsletter that um, you know, some companies when they say we've confidentially filed, they say based on market conditions afterwards, you know, we will make a decision here. It was like, yeah, you know, we just want to get things started. Um, how likely do you think it is that Anthropic does go public in the next year? And how much of it do you think uh depends on the SpaceX IPO?

[00:04:47]I don't think it's truly linked to the SpaceX IPO. I think it would be more linked to the OpenAI IPO. If anything, I think they'd actually want to beat them out of the gate to soak up as much demand as possible because that capital has to come from somewhere like it travels in pools and it's going to go to its best use case. And I think it's very likely that they IPO before end of the year because they just did that series H at 965 billion. And it's very common for a later stage company to do one final um private fund raise right before IPO because it gives their current investors um a bit of a discount to say, "Hey, you're underwriting the business now. I don't know how much is going to change between now and then with Anthropic.

[00:05:31]Maybe it's the only case if they keep adding like 20 billion each quarter, but you're getting in at a good price now, but you also have to get in on the IPO to help us build the book out. So, it helps both parties where the final late stage crossover funds like a Dragon Ear or an altimter. They get a nice bite at it at a price that's lower than what they'll IPO at. And on day one, if it pops, they're already in the money and they clear their carry hurdle on this huge amount of capital they're deploying. And then um and and then Anthropic gets to fulfill part of that book that they have to build out. And so so they're already partway there. So this this is common then finishing a you you know doing a a a large private funding round and then going straight into the IPO process. That that's that's not an anomaly here.

[00:06:16]>> Not at all. Like if you look back at a snowflake or a crowd strike, they all raised private rounds pretty like a couple months before they IPOed. So this is a triedand-true method to also akos set a a floor on what the valuation will be. So what you're doing is you're saying these important investors who are really smart said that the floor is 965, right? That's your jump off point. And so I think that number is very important heading into the IPO. When you think about anthropics business here, we're all eager to see the S1 whenever it comes. You know, it's still probably a while away. Again, this is the confidential filing, but um when you think about all the different parts of the business, I I sort of think about all the different cost structures that they have in place, all the different investments they're making. What part of their business do you think is most likely to get scrutinized or, you know, I'm thinking about these big cloud deals uh that that they structure like what what questions do you have are you eager to get answers to uh throughout the IPO process? I want to know what their true capacity is to generate revenue if they weren't so constrained by like you just saw that that X AI deal they just tapped into. If they weren't constrained by how much compute was out there, like how much revenue could they possibly do? And then how many long-term agreements do they have to lock down that uh compute capacity? Right? You're kind of measuring for two things.

[00:07:45]Hypothetically, how big could the engine be? But then also, how much gas can you put in it? And I think that's like the only thing that that could possibly be scrutinized that you are trying to get to these lofty revenue targets, but you're not able to fill up the tank and have enough compute to get there. And so in other words, the the disclosure that we saw this week from SpaceX that it sounds like their deal with Anthropic, they've actually uh extended it or maybe I mean they just disclosed that it was a bit longer, I think, than than what was previously thought. That that didn't surprise you. Sounds like that. Well, like first of all, are they subleasasing a Boston apartment? I don't know if terms this fluid for such a a large amount. I don't it like that.

[00:08:27]>> What What do you mean by that?

[00:08:29]>> Well, it at first it came out that any any party can terminate it within 90 days, right? So, we're talking about 1.2 billion in commitment and spend per month. If you annualize that, it's over 14 billion a year. And they're saying within 90 days. So, then they come out, people start to panic and they say, "Oh, actually the first 180 days are locked in." And it's like, okay, but I don't even know if this is going to last for a year. So, I mean, we could come at this from the anthropic side, like, great for them. They they locked in some more capacity, I think, at least for the next uh 180 plus 90 days, right? Uh like 270 days. But, um you could also come at it from the XAI, like is this true revenue?

[00:09:06]So, it kind of goes both ways. Well, and I I don't know, it seems to highlight to me just like you said how fluid the situation is. I mean you know we know that all of this relies on demand and then needing demand and the game right now is we are uh we are supply constraint basically you know we we we basically have standing orders for our AI >> and I guess the calculus is it might you know if the situation changes on either side we got to be ready to to adapt which is scary I mean that's going into an IPO I mean I can't see how that's like you know the most predictable situ situation to be in.

[00:09:44]>> Not at all. Not at all. And like it's throughout the ecosystem. It's pervasive. It's not just Anthropic and XAI. If you if you trace it back to Cursor, the that whole deal is predicated on them needing more capacity, right? Like I'm sure all things equal, XAI would rather be selling um like their own stuff and in their own large language models and using the data centers for that. I don't think they built the data centers to be a landlord, you know, but everybody is buying up excess capacity and it's it's kind of like uh beg, borrow, and and steal whatever you have to do in order to keep these things rolling.

[00:10:20]>> CJ, let me ask you one last question. So here, as you think about the SpaceX IPO, Anthropic, and OpenAI, I mean the dialogue has been these are three monstrous IPOs.

[00:10:30]To what extent does the market have capacity to absorb uh these new offerings? uh what do people sell to get into these companies uh given how big they are? I mean where do you think the pain could come from? Like how do you think this overall could change the structure of you know the the multiples that uh companies have? I mean this is not just opening anthropic and SpaceX on its isolation.

[00:10:57]You have the SAS apocalypse happening in the background, right? you have uh the chip company like what what do you think people sell to get into these companies if you like Salesforce at 3x you're going to love it at 1.5x um but but seriously the capital has to come from somewhere and the capital travels in pools and so if you take the open AAI IPO anthropic and SpaceX and if you assume they're each raising between 50 and 100 billion in in uh funding like we there has to be 500 billion to come from somewhere, right? And it gets pulled from places that you don't have as much confidence in the long-term viability of it, regardless of the short-term metrics. And that's what's scary to me because like I was looking at net dollar retention rates, which I think is the best metric to measure um durability of revenue. And in SAS, it's fallen in every quartile by between 14% and 15%. So like say it used to be 130%.

[00:11:56]It went down to like 115 114%. and every cortile dropped by about the same amount. The companies since 2022 like they haven't degregated all that much. It's just there are better uses with more confidence in the long-term outlook and uh ability to grow revenue than what we had before. So, it's kind of like um there's just a better option coming along. And um it's kind of scary for companies that don't have a true AI story. Um but if if you buy into that AI story, you also have to buy into the uh the incineration of capital that these companies are undergoing. Right. Right.

[00:12:35]Great. Well, CJ, I want to thank you for coming on. That is CJ Gustafson, founder of Mostly Media here on TIV.