Amanda Lynam, Chief Credit Strategist in Global Investment Research, Goldman Sachs
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If you just look at the CapEx figures from 2026 through 2030 for the group of hyperscalers, that CapEx estimate is upwards of $6,000,000,000,000 So it is significant if you push that out through 2031. And then you also include what's already been invested in 2025. Those numbers are even larger. And of course, here, I'm just focusing on the hyperscaler ecosystem. But what we found in our work is that actually the hyperscalers are only 40% of total AI related gross issuance. So the theme is actually much broader.
Hello, this is Dean Kernutt, and welcome to the Alpha Exchange, where we explore topics in financial markets associated with managing risk, generating return, and the deployment of capital in the alternative investment industry.
My guest today on the Alpha Exchange is Amanda Lineham. She is a chief credit strategist in global investment research at Goldman Sachs. Amanda, it's a pleasure to welcome you back to the podcast.
Thank you for having me back, Dean. It's great to see you.
Was great to run into you recently at Bloomberg. And you're a person that I've wanted to talk to because there's so much going on in your area of expertise around credit and all of the CapEx and AI build out. So we're going to have a lot to talk about. You were on the podcast, I just checked, in October 2023. And it's probably the case you'll know it better than I do, but perhaps free cash flow for the hyperscalers probably peak the next year is my guess. And it's kind of been on a one way train lower as they issue so much debt. So we're going talk a lot about that. So let's get the conversati
Sure. That sounds great. So at a high level, I would say we're generally constructive on corporate credit due to a few fundamental factors. One is the macroeconomic backdrop is probably good enough for credit at this point. So anywhere around trend or even slightly above trend growth is a pretty favorable backdrop for corporate credit. And that's essentially what we have. And presumably that is something that I think extends across a range of asset classes, but is definitely a supportive factor for credit. Second, on the fundamental side, we have pretty solid fundamental metrics. Our team has
Let's go a little deeper on the corporate fundamentals. So as a lender, the best you can do is get your coupons and your money back. And so you're really concerned about the borrower's capacity to pay. Take us through from the way you look at things and maybe the macro assessment of that, whether it's leverage, free interest coverage. Give us a sense as to where that is now. And then maybe juxtapose it versus previous cycles, how safe does that look just from the lender standpoint?
I would say the widening that we are expecting in corporate credit spreads is really a function of technical indigestion of elevated supply and not necessarily a concern about deteriorating fundamentals, at least for the most part. Where I would call out the most risk from a fundamental perspective and where interest coverage metrics really warrant closer monitoring is in what we call the left tail of the credit market. So triple Cs in US and European high yield or even certain subsets of the private credit market, specifically very small borrowers from vintages that were formed in ultra low i
I definitely want to circle back to the big picture of portfolio construction. I know we talked about areas like pharma as just different, perhaps it's banks as well. I think you mentioned food and beverage. So I want to circle back to that. As you were describing this search for value and maybe avoiding some areas
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