Transcription
Hello and welcome to another episode of the OddLotss podcast. I'm Joe Weisenthal >> and I'm Tracy [music] Aloway. >>
Tracy, I saw an interesting headline this morning. >>
Just one. >> Good point. There's I saw a million interesting headlines, but one that sort of caught mine. It was sort of market moving is there was this comment from uh Jensen Wong. He was at a conference, the CES conference, and he was talking about how in the future, I guess, their chips are getting more efficient as chips tend to do that they may not as need as much intense cooling um uh cooling infrastructure or cooling equipment for future data centers. And a bunch of those like sort of infra those cooling names like train technology, they're like really getting clobbered because we know those have been like some of the big the big winners from the AI boom. >>
I can hear all the private equity shops that bought HVAC. outfit screaming from over here. No, it is a really interesting headline, right? Because you think about this as a technology space. AI is technology, but it has this huge infrastructure aspect attached to it. Infrastructure investors from what I understand, you know, historically have tended to like relatively stable returns, right? you invest in it because you expect this to be a pretty reliable business, but because you have infrastructure that is now tied to tech, it seems like there's a pretty big big risk that like every year or every two years or maybe even months now, there's going to be some huge tech upgrade that just changes the equation entirely. >>
That's a good point. Like I think like the first time years and years ago I started hearing about infrastructure investing, it was like, oh, we bought a toll road, right? Or we bought an airport. airports by and large they're you know, they don't get disrupted very much or a toll road like the basic business of some of these things has um remained stable but yeah, to your point especially now that there's such a link with uh tech just like the sort of volatility of what's going to win out or what's needed seems seems highly uncertain. Yeah, and of course the other obvious thing going on at the moment is everyone's talking about AI valuations. Is the buildout getting ahead of itself and are all these companies actually going to be able to generate enough cash flow that backs up all this investment spend? You know the other thing too and it's something that we've observed which is if you go back to like infrastructure investing is not a new thing by any stretch but you go back to the 2010s and so much of the money that was made then it was sort of like financial financial engineering financial opportunities who had dry powder at a time when everyone is broke and so forth. And one of the themes that's recurring over and over again these days is just like to make money it feels like you really have to get your hands dirty. physical things of all sorts and physical things have just been in our face constantly since co and then it's accelerated because of there's so much public money pouring into the space so uh governments around the world really opening up the tabs and then you know we then over the weekend we had we're recording this uh January 6th by the way obviously um the Maduro no the Maduro news and so then there's all this stuff it's like oh who's going to rebuild all of that oil infrastructure sure if that oil is ever going to profitably be tabbed. Like this is just sort of the physical world is sort of like the story of our time. >>
Are people talking about public private partnerships yet? I feel like this is another cyclical thing that just pops up every once in a while. I'm going to do let's bring in our guest and while we do that I'm going to do a news trend search to see where we are in the public private partnership cycle. >>
Let's bring in our guest. Well, we really do have the perfect guest uh who uh long lots of experience in this realm. We are going to be speaking with Tyler Rosen. He's a portfolio manager, global listed infrastructure and natural resource equities at Cohen and Steers. So, we're going to talk about all this stuff. Uh Tyler, thank you so much for coming on Obl. >>
Thanks for having me. I'm real excited. >>
What's your job? What do you do? Why are we talking to you? What's Cohen and Steers? Let's uh let's get that out of the way. >>
Yeah. So, Cohen and Steers, we're a long only asset manager. We primarily invest in real assets and alternative income strategies. So, we're, you know, managing mutual funds and ETFs, active ETFs and separate accounts for institutional investors. uh focused on a couple niche things um primarily real assets uh strategies uh here and now. So that's things like listed REITs which we're really well known for um commodities uh and then where I where I help uh is our global listed infrastructure and our natural resource equity strategies. So these are long only strategies uh investing across in infrastructure. It's you know we call the the cute subsectors. So that's communications things like cell towers data centers and satellites utilities. So this is electric gas water renewables. Uh transportation the toll roads that you talked about you know toll roads airports marine ports and freight rails. And then e energy is is midstream pipelines and so forth. So we we try to look at everything and and give investors uh exposure to what is really a dynamic and exciting place. >>
So how busy have you been over the past year or two? >>
Uh it's been very busy. I mean my joke used to be that I invest in all the old economy stuff. Uh now it's like the new economy stuff and it's the stuff that people are really excited about. And I'd say we've seen a lot of these trends kind of coming for a long time and we've talked about them for probably a decade, but they've really only surfaced kind of to the front page of of Bloomberg every morning uh in the last 18 months. And I think that's really exciting. Um and and we've been really busy because there's lots of new opportunities. We see investment cases in traditional utilities, tons of new alternatives, nuclear, renewables, pipelines, uh lots of new businesses, capital formation, great opportunities. >>
And what's the balance of power actually like between investors and the companies that need investment at the moment because I imagine it could go either way right now. Like the the energy needs for data centers are absolutely massive. So it needs tons and tons of capital but at the same time a lot of investors as we've been discussing have been very very eager to identify opportunities and get their foot in the door. >>
Yeah. I mean in the world that I live in which is the sort of hard asset economy I'd say um having capital is very important but we're now at a place in the cycle where the investment needs are so big that it's creating pretty big challenges for companies. And take the utility sector as an example. Um 18 months ago if you said hey utility capex is going to accelerate and earnings growth is going to accelerate every utility investor would say that's great. Um we've gone to such a level now that it's actually a really nuanced answer. You know there is so much capital required in utility investment today that it's really causing affordability problems and some utilities we think are really going to struggle because elections are being won about utility bills. Yeah. Other utilities on the other hand actually you invite data centers into your service territory and it lowers bills and so today I actually think um from an active management perspective the dispersion in terms of outcomes and investment opportunities is as wide as it's ever been. So so that's a really good thing for us as investors and I think it's not going to end. You know we think these are structural secular trends that are here for a while and um you know we we don't think this is a fad from an infrastructure investment perspective. >>
Hey, just real quickly, data centers lowering bills. Uh people that headlines like that don't go viral. What what what's that all about? >>
Yeah, it's very nuanced. So, if you think about the utility business model, you know, very simplistically, the utility invests in its rate base. So, let's say their rate base is $10 billion. They're allowed a return on equity. Maybe it's 10%. They earn a billion dollars. This is very simple math. Isn't how it exactly works, but uh then they charge their cost to customers and that's their revenue requirement. what we as bill payers pay. Uh you double your rate base. If you don't increase your customers, you could actually double your costs. And that's a lot of what's happening here in New York City and Washington DC and other places. There are some utilities that are long generation or they're long power. So just think about that very simplistically. You've got a utility, it's got a rate base and inside that rate base, every rateayer is paying for power that's not actually being used. >>
Bring a data center into that service territory. the data center itself might consume that power and you as the rate payer are not actually going to be burdened by that cost in your monthly bill. >>
And so for us, we think it's really important you've got to understand the regulation, who the commissioners are, what their power systems are like, their generation, and so forth. And there are examples of data centers being really good for both the utility and the customer. But that's again it's very nuanced and it really depends on where you are and sort of what your your your asset base looks like. >>
Okay, talk a little bit more about that because we've done episodes on the political risks involved with the data center buildout and this seems to be something that is really gaining traction especially as we go into the midterms and we see politicians sort of, you know, laying down their positions on this particular issue. But how feasible is it that you could get a data center that could actually in some way improve the electricity market in a particular state or location? And then I imagine that you have to have a lot of room, right, to have a data center. You have to have water access and things like that. It can't be it can't be good everywhere, right? >>
Oh, definitely. We're we're not saying it's good everywhere. I mean, I'd go the opposite and say it's really actually bad in a lot of places and then it's really good in some places. And so, uh, it really depends on all the things that you just laid out, which is, yeah, do you have the generation, do you have the water, do you have everything else? What you're seeing now in utilities is, um, data center tariffs that are being kind of negotiated and going through the utility regulation process today. And we've seen some examples in Wisconsin, for instance, where um, effectively the data center has zero impact on the local rateayer. you know, the the the hyperscaler in Wisconsin has agreed to guarantee a return on a rate base for the capex that the utility is spending. It's not going to impact the rate payers there at all. And so, it's kind of done off of the the the sort of back of the utility customer. There's other places though where they're still working through those utility contracts or, you know, we'll see, but hey, you could have big stranded asset risk. Utility is going to spend a couple billion dollars. They're going to make sure that the data center has power and electricity. Maybe the data center leaves five years from now and then everybody's going to be stuck with a stranded asset. So no, definitively I mean take a step back. You know, we think the world needs more energy. We think the world needs more power. It's going to service data centers. It's going to service industrial customers, residential customers, sort of everything. EVs, you name it. Uh but that's going to come with the tension of rising bills. And you know, that's going to be a challenge for some places and an opportunity for others. >>
I'm curious. We'll get into all all these details and stuff, but I'm actually have a lot of I'm very curious about how you work and how you figure this stuff out. I have to imagine for as much for as long as you've been working on this, there must be new things every day because as Tracy mentioned, we've it's gone from this sort of like a lot of stayed stable operations to high-tech and there's so much uncertainty. How do you work? Like how do you work? Do you how do you learn about things? Do you have a team of analysts etc. Talk to us about like the process for wrapping your heads around so much novelty. >>
Yeah, so you know we've got a great team. Um on our infrastructure team there's four portfolio managers and sort of we kind of break the world up by geography. We have one PM in in in London and who helps us with our European infrastructure investments and then three here in New York with varying expertise and then we have seven analysts and they're sort of our boots on the ground. I mean Conan Steers was founded as a real estate investor back in 1986 and our perspective was you know be on the ground be walking properties be touring assets because you can find you know unique insights if you do that sort of thing. So we want to have this big team that is sector specialists that really understands the utilities, the regulation behind it, what's going on in local politics, uh going and touring assets, talking to local professionals and trying to find kind of where we can see unique insights and where hey the regulation's getting a lot better or there's this unique contract that we think is going to be really beneficial to this small local utility. Uh or hey um what's going on in New Jersey? What's going on in Virginia in in in New York City? how's that going to affect things as well? And so, um, I think it's important to have this team do really detailed fundamental work. And for us as investors, I mean, our CIO, he would characterize us as thematically informed relative value investors. So, let's find good themes that are underappreciated and underpriced and then find the best investment opportunities to take advantage of those. And if you do that, we think you can generate really good investment results. >>
My favorite form of sellside research remains the analyst going on field trips. So now I'm imagining everyone's staring at a data center in New Jersey or something. I know you're not sell. But um speaking of that though, how do deals actually land on your desk? And I say that realizing that I'm talking as if someone's like mailing out offer letters to you and it's actually landing on your desk. How do deals or potential opportunities get to your screen? >>
So we're public markets investors. So we're just trying to find listed securities and figure out which ones we think are best positioned for the next one year, three year, five years. And so we're constantly invested. So as we raise capital via open and mutual funds or through our active ETFs or through separate accounts, it kind of comes in and then we have our core strategy that's invested at all times. And for us, it's about, you know, being positioned in a way that we think will do a lot better than the benchmarks that we're measured against. And so for us it's sort of your traditional equity research function where we are constantly trying to make sure that we are leading edge in terms of what's happening in markets and identify hey um we think that this thing is going to happen to the North Dakota utility as they invite a local data center customer there that's underappreciated by the market. And so it's the the fundamental boots on the ground stuff that everybody does and we just think that we've got some unique uh you know processes and unique ways to to tap it. >>
At what point did it sort of dawn on you or dawn on the market etc that a lot of companies that we had long associated with being sort of classically cyclical companies are secular can be secular winners now I'm thinking of like a caterpillar which you just sort of imagine by and large here is a company whose fortunes rise and fall with GDP right the economy is growing well it's they're probably going to have a lot of people are going to be buying equipment to break ground you get a recession, people buy less of it and then something changed and you look at a chart of like a Caterpillar, it's like, okay, this is no longer a cyclical company. When did this start to like take hold or sort of dawn on people that there's some there's something was changing? >>
Yeah. So, so I'd start with so I have kind of the dual function where I oversee help oversee our infrastructure strategies and our natural resource equity strategies. And I'd say on that side of the house, so that's investing in things like uh the entire energy value chain, the metals and mining value chain, the a value chain. you've seen a lot more of like the caterpillar type transitions that you just alluded to which is hey this hypers cyclical business that suddenly is being valued like it's not as cyclical. So I'd start with um things always have cycles and so uh it might be perceived as not cyclical now but maybe it will become cyclical again in the future but our view would be hey these cycles are actually higher and deeper and lasting a lot longer and one of the big drivers has been you know a lot of the natural resources world has been capital starve for a while and in that process many sectors and industries have consolidated quite a bit and so the expertise has really acred to just a couple players and if If you think about that and you say, "Hey, um, you know, one of the things that we believe about natural resources is that we've exited what we we talked about as the era of abundance and we've entered the era of scarcity. You know, we just don't have enough of all the stuff that we need for the economy to grow." and the companies that actually facilitate uh ending that scarcity, there's just not as many of them because again there's been massive consolidation in these sectors that we think will be persistent, will allow them to earn above average returns, have a lot more predictable growth for a long time and then we'll reassess in the future and maybe the competition will be invited back and they're going to go back in the other way. But but we think it's really early in a lot of these trends and and the sort of secular growth and the reduction in volatility of that growth is very different now than it was 10 years ago. >>
So I take the point about consolidation and that you're working on you know pretty long timelines but how do you guard against you know the possibility that as with everything infrastructure related um and energy related certainly it seems like we always end up with over capacity at some point in the cycle how do you uh avoid that >>
um can't avoid it we we that will happen right like uh on the commodity cycle uh you know the cure for low prices low prices the cure for high prices high prices same thing on the infrastructure side although infrastructure again it's it's um generally assets that are monopolistic either by regulation or by competitive dynamic you know you think about the US freight rails >>
you can't really build a new one and so the competition there is going to come from new technologies like autonomous trucks and other things you think about things like airports even utilities I mean these are local monopolies so in infrastructure that sort of overbuild I mean it would happen on the power side and and it will happen at some point like you look what happened with shale pipelines in North America right in 2010 we thought oil production was going to go up a lot >> we built a lot of pipelines by 2015 2016 >> and oil prices declined we didn't need all those pipelines in the short term caused a lot of turmoil and so uh again to answer your question directly can't avoid it but we as investors our job is to try to sidestep it understand when's the market getting too uh excessive in terms of its expectations >>
Tell us about right now uh January 2026 and let's within the realm of say US energy and US energy infrastructure. We all know the headlines and we've done a million episodes on them. There's so much demand for electricity. All right, I get that point. But talk to us literally like specifically about what are we seeing right now? What is the math that you see out there? And maybe to frame it like how would this conversation be different even in say January 2024 or January 2025. >>
Perfect. So, so let's actually um let's not start with the US, let's start with the world, okay? >>
Because uh I think it's let's start as big as we can go and then we can drill down. Um >>
you know a lot of people for the last like six years when they talked about global energy demand we think they did it the wrong way. They focused on the supply side where they said hey the government has these targets or we have this sort of goal to have uh global warming be xyz. this is what the supply would have to look like to satisfy that world. And we said, you know, um why don't we start with demand? You know, what do we think global energy demand is going to be in the next two decades? Then let's figure out how we're going to supply it. So global energy demand, it's a pretty easy model. It's kind of three factors. You know, the first thing that you care about is global population growth. Okay? >>
All else equal, more people, more energy is consumed. I'm not talking oil or coal. It's energy in aggregate. The second thing that you think about is the global economy. You know, bigger economy, all else equal more energy consumption. The third one is pretty tricky and that's the uh energy intensity of economic growth. Uh and that is hey how good are we at converting an energy input into a unit of economic output. Uh so what we did a couple years ago is we said hey let's try to predict those things in the very long run. The the first thing is, hey, population growth, um, we think it's decelerating, but it's still positive. So, in 2040, there's going to be a lot more people in the world than there were in 2024. Uh, economic growth, we think it's going to slow, but still be pretty positive. Maybe it used to be 3%, now it's 2.7. That means more energy demand. And then we said, hey, let's assume we get a lot more energy efficient. We're going to be a lot better at consuming and converting energy into economic growth. That's a comfortable assumption, you know, two years ago because government policy was mandating it, consumer preferences were mandating it, uh, and and also technologies were getting better. When you put those three things together, what you saw was global energy demand rising from about 178,000 terowatt hours, which is, you know, big number, but 178,000 to 220,000 in 2040. That's a big increase in global energy demand. And again, that assumes a big increase in energy efficiency. So then you you peel back one layer. How does renewables fit into this? Well, uh we also want to reduce coal consumption. So if you think about this, hey, we're going from 180 to 220. We want to reduce the amount of coal we consume. Renewables, we need to add 60,000 terowatt hours or 55,000 terowatt hours of of supply. It's a huge number. That's basically recreating the entire global crude oil industry that's been around for 100 years in the next 16. So what's changed in the last 12 months? That global energy demand assumption for 2020, sorry, for 2040 has risen. Our confidence that we're getting less energy intense has gone down because a lot of this economic growth is very uh energy intensive. And so we've been in this energy addition world. This need to produce really more of everything. And it's only becoming more uh uh of an issue and a challenge and an opportunity for the energy industry. >>
Actually, that reminds me, I wanted to ask you, can you talk about the decarbonization initiatives from some of the hyperscalers themselves and how you're >> judging some of those efforts? >>
Yeah. >>
You know, um a couple years ago, I So, there's sort of like three competing factors when you're thinking about energy. So one is um you want the energy system to be stable, you want it to be clean, and you want more of it. And I think five years ago it was clean, stable, more in that order. We want clean energy, we want it to be stable, and we want to have more. Uh today, it's it's kind of flipped, right? We need more. It has to be stable. And then we do want it to be clean, but we can't necessarily sacrifice the clean for the more and the stable part of it. So, I think everybody is well-intentioned and doing the right things, which is, hey, um, let's try to transition the dirtiest stuff away, move from coal into natural gas. Hyperscalers who have a lot of cash, let's try to re-industrialize the nuclear economy. Let's continue to make investments in SMRs, in existing reactors, turning them on. Let's try to get more geothermal and other things in the, hey, let's get more of it. Let's make sure it's stable. Let's make it as clean as possible. And then once we've kind of gotten there on the buildout, we can start to shut down the stuff we don't want and really just rely on the stuff that we do want. But again, um the the the three factors have have changed and uh I think that that's really shifted market perceptions on what the energy industry should look like. >>
Just have they acknowledged that they've changed or is this just a quiet they've changed but we're not get they're certainly not putting press releases about it but you know, how is it just you know changed? I think it's um I think it's it's actually a little bit more acknowledged than people would say out loud. Like I I get yelled at sometimes when I talk about specific stocks, but there's a UK-based major energy company that you know went one way and then they've very publicly gone the other way. Yeah. And I think um you know that's that's normal when you see sort of market conditions shift like this. >>
Random question. The year 2040, are we still going to be using coal in this country? Um in our model, our 2040 model would say, so um our model is global. So so this country versus the world, let's let's just focus on the world. Okay. >>
We have coal supply or sort of coal generation cut in half by 2040. >>
Okay. >>
Um >>
I think that's ambitious. Uh I would hope that it was zero. Yeah. >>
But the sort of energy pragmatists would say, hey, um around the world, coal will be relied upon for a really long time. it will be a a much lower percentage of energy markets and we think it will sort of decline over time. But again, the the idea of zero coal around the world by 2040 I think is highly unlikely. >>
Since we're talking about energy on a global scale, talk to us about what you're seeing or expecting out of China because this is the other source of a million headlines nowadays or at least a million headlines with very very large numbers in them about what China is doing in terms of building out its energy capacity. >>
Yeah, I think um you know part of it is you think about the global uh geopolitics and you say like well why are some places more aggressively pursuing alternatives versus traditional and you know why did Europe do as much renewables as they did and a lot of that has to do with taking advantage of what you're endowed with or not. So, so here in North America, we have plentiful natural gas and crude oil and our need to invest in renewables uh from a cost perspective is different than Europe where they are an importer. And so the way to sort of convert from being an importer to self-sufficient is to harness what you've got. If you've got a lot of wind and you've got a lot of sun, you're going to want to overinvest there. You know, I think China depends on the world for uh energy supply and they're trying to reduce that and they want to be more independent. They're going all in on nuclear. they're generating or they're investing massive amounts in their nuclear economy, coal generation as well. Kind of everything in I think just an effort to to be more self-sufficient. But that's not China specific, right? That's kind of like every country right now is is doing a similar thing and trying to, you know, be a little bit more self-sufficient in a postcoavid, post-Russia Ukraine, rising geopolitical tension sort of world. >>
I think I'm uh very skeptical that we're going to have a nuclear renaissance in the US. Like I know there's tons of headlines and I'm sure there's a few of those places that are going to get restarted. I'm not an expert. So it's it's just my gut. Is am I off the mark? What do you think? What are we looking on? >>
So I think it really depends on what you mean by a nuclear renaissance. So So some people >>
give us a time frame, Jeff. >>
Like okay, here's my I don't even Why am I making predictions? I don't know anything about this stuff. But like I would be surprised like if you know if I were in Poly Market or something I would imagine that there's not uh what's that plant in Georgia that came online? >>
The Vogle >>
the Vogal plant like I don't think there's going to be another Vogle in the next 20 years. >>
Okay. So so let me um I I disagree. I'll kind of talk you through why but but let me let me tell you about what the nuclear renaissance and again I'm talking kind of global as opposed to just US but we can definitely talk about US too. So if you think about what's gone or take take another step I like to take a lot of step backs as you can tell. Um >>
are we going to talk about the galaxy >> wide [laughter] no data centers in space in this conversation I promise. Um >>
no actually now that's a good I'll ask you about [laughter] that at some point. Yeah. >>
Uh okay. So so why why do we why are we talking about nuclear? Yeah. Right. It's pretty simple. Um you break the world into traditional and alternative. >>
Good thing about traditional so things like natural gas and coal uh is it's reliable 247 365 energy. Unfortunately, it has the emissions profile we don't like. Uh alternatives, let's just call it wind and and and and solar. Um has the emissions profile we want, but it's intermittent and variable. You know, if you're a data center CEO, you're feeling pretty good about your business today. You kind of wake up with night sweats about the power going out, right? You cannot lose power. You have a very expensive metal shell that's cooling servers and providing electricity and energy, which means, hey, uh I can't take the intermittency. I've got to use the base load. Nuclear is sort of the one resource that can kind of serve both masters. It is 247 365, low variable cost, very high capacity factor, and it's also pretty clean. And so that's kind of why we're talking about nuclear. >>
There was an episode maybe a couple months ago where you said, "Hey, nuclear batteries." Yeah, >>
I'd rather >>
I was about to ask you the same question actually. >>
We'll go there. I think I mean it's all about energy storage. The whole thing is like, "Hey, how do I store energy to use it when I want it?" Like coal is effectively an energy battery. Mhm. >>
Natural gas is an energy battery. There's just no batteries for wind and solar that are viable today. But I'd love to solve that problem and that would that would help in a lot of ways. But back to the nuclear >>
can't hold solar energy in your hand. >>
You can't I I wish you could and may well one day you will but but we think it's going to take quite a while to do that. But um okay so the nuclear renaissance um we've been shutting down nuclear generation capacity around the world for the last two decades. So step one is let's >>
including in famously sunny Germany >>
everywhere. So, so step one is like, let's just not shut it down. Um, we think we're in like the seventh inning of that ball game. Like, we're we're we're not shutting it down. >>
Okay. That's some that's something. >>
Yeah. So, so phase two is like, well, can we turn on any of the stuff that we recently turned off? You know, we're in like the fifth inning of that game. Uh, I think that sort of uh is going from a slow bleed to hey, flatten and then slow growth. So, the next couple years are about, hey, turning on ThreeM Island in other places. Um phase three, which would be I think we're in the second and third inning and we're going to start to see some acceleration here, would be the sort of brownfield inside the fence nuclear facility buildout. Hey, you worry about nimi issues, site supply, security, safety. I think that's been talked about here as well. We do think that that's going to uh start to pick up, but but that's like a 2032 to 2035 in service. And then we talk about SMRs and thorium and other opportunities. I I think that'll happen, but it's like 2035 to 2040. So, that's still a renaissance to me. We're taking something that we were sort of allowing to slowly melt and we're sort of refreezing it and then we're building it. And that's that's okay. >>
Just yes or no. By the year 2040 in the United States, will we >>
see >>
you guys are going to start a poly market contract? >>
Will we get another vote? >>
I've got this like internal bet, so I have to say yes. Uh but there is a caveat. Um [clears throat] >>
no utility will do it themselves. >>
Yeah, >>
there is I'd say zero chance that a utility will say, "Hey, we're willing to do a green field new nuclear facility with no cost overrun risk, but I think the cost overrun risk will get covered by the government." So, um, we're starting to see some of this stuff you we're seeing it across the natural resources economy, right? Where the US government is taking direct equity stakes and they're having a more directly interventionist approach to all of critical minerals and resources. So, what would I do if I was sort of the energy zar? I would say, hey, um, I'm the US government. I'm going to backs stop guarantee cost overrun risk for 10 nuclear generation facilities across the US. I'm going to make sure they get built. I'm going to sort of shoulder the excess cost burden and then maybe at the end of this I'm just going to sell it to the highest bidder. So let's just make up the numbers. Maybe it costs a hundred billion dollars for the US government to do that. Um maybe those 10 facilities get sold for $50 billion and the the taxpayer has taken a $50 billion loss. But here we've got 10 new generators providing sort of cheap and clean energy. Maybe they can sell it for 150 and actually sort of you know help the the deficit situation. But so so again to answer your question I think it's going to happen but I mean one of my key messages it's not going to happen alone like these supply chains are not going to come about because of market forces you know you're not seeing a reaction in copper production you're not seeing a reaction in uranium mining you're not seeing a re reaction nuclear generation without direct government sort of intervention has a little bit of a negative connotation but direct government um catalyst you and and I but I think that that's going to happen and we're starting to see it. >>
Um I want to press you further on that, but this reminds me I did pull up the um chart of the number of times public and private partnerships are being mentioned in news stories and uh yeah, spiking into late 2024 and 2025. So we're we're back. Um but okay, talk talk to us a little bit more. Why doesn't the market like signal work for something like uranium or you mentioned copper as well? >>
Yeah, I I think um honestly these are sort of markets that have been sort of forgotten by investors and um companies are still being penalized for uh increasing capex and increasing supply. So, >>
so it's kind of the shale story that sort of >>
the shale stories like so, so you look at sort of um at the end of last year, some of the major mining companies talked about their 2026 capex. Most of them sort of cut capex expectations or at least relative to consensus came in below. That's weird, right? Copper prices all-time highs, gold prices alltime highs. Shouldn't the miners be uh increasing their capex and inviting that supply response we talked about earlier? Uh the investors just revolt. They say no mas we we >>
they want the discipline. >>
You've destroyed so much value and they did right. Shale destroyed a lot of value 2010 to 2020. And so um I just it's not going to happen naturally. Um and maybe that's okay because you know these these management teams I mean they should continue to be held to the discipline. Um but we do need the supply and so that that's why I think that the government is going to try to get it get it moving and and we've seen examples of that, right? You saw some rare earth stuff last year, lithium stuff last year. Obviously, the big nuclear um uh you know, backs stop of of contracts and so forth that was announced in the end last year. A lot of it is not well defined, but we're going to start to get some more definition behind this stuff. >>
You can't blame the shareholders. I mean, it must be so sick. You have these prices shooting through the moon. It's like, why not just take the cash, >>
you know? I mean a as a long-term uh oriented shareholder as a shareholder >>
as a shareholder >>
you know I think listen at these prices returns on a lot of projects actually look pretty good but you worry about administration changes and you worry about the supply response and honestly these companies did really poorly for a long time and so um the spreadsheet math might say hey you start drilling again but the sort of history would say no no the returns need to be way better to justify that And and I think it's a rational response by the investor base. But I think step one is like people need to start looking at the again the old economy stuff again, but it's the new economy stuff. People need to be looking at natural resources stocks. They need to be looking at infrastructure stocks. They need to be feeling good about them providing capital to these companies and then you will get that supply response. But but again, it's it's early in the cycle. >>
On the topic of natural resources and maybe investor reluctance, we're recording this on January 6th and the big news in the markets is of course what happened over the weekend in Venezuela. I'm sure that's not your particular area of expertise, but you know, as an infrastructure investor, when you look at a place like Venezuela where we hear they need billions of dollars of capital to get the oil industry up and running, what do you think about that situation? >>
Yeah. So let me just talk about it strictly from like an investor perspective and how you would sort of think about that. Um being an infrastructure investor, we care a lot about one risk that very few people spend a lot of time on. So So if you were to say, "Hey Tyler, you talked about the data center CEO staying up at night for losing power." What keeps you up at night? For us, it's regulatory risk, right? You're investing in airports and utilities and things like that that are governed by a regulator. We worry about surprise. And you you get regulatory surprise here, right? You look at what happens with ill uh utilities in Illinois. You look at what's happening with FK and as they sort of change things. So we spend a lot of time >>
I don't know anything about utilities in Illinois. [laughter] >>
Well, like uh hey um the utilities spent some capex and they said, "Hey, we we want a higher return and we want to get uh that in our rate base." And the regulator just says no. >>
You know, and and so you you talk about our boots on the ground investing. It's it's trying to make sure that we understand those very difficult things to figure out before everybody else does. So take it to Venezuela. Like if I was to make a large foreign direct investment there uh from an infrastructure and resources perspective, I would really really want to understand the legal constructs surrounding that. >>
And that's really challenging in the midst of regime change. And so, um, I'm very hopeful, like I think everybody would say, "Hey, we're hopeful that things get resolved quickly and then you sort of figure it all out very fast." But it's going to take a while, I think, before you actually start to see some investments because, you know, as an infrastructure investor, the the risk of expropriation, nationalization is very high. And so, you don't want to go and suddenly see your assets stranded there. So maybe that answers your question, but again, a lot of it is about understanding regulation and law and and what's happening in politics and so forth. >>
Well, I'm also curious. I mean, we had, you know, President Trump is obviously very excited about the opportunities to rebuild that infrastructure and for American companies uh to come in and be part of that. But oil, West Texas, it's at $57 a barrel. I'm curious, you know, setting aside the obvious, highly uncertain regulatory environment of Venezuela. I don't know what like pencils out at 57. I'm curious, you know, you mentioned pipelines like during the 2010s or sort of, you know, there's a lot of anti-pipeline politics and I assume that the current administration is much more um you know, green light for pipelines, but who wants to build new pipelines at these prices? >>
Yeah. So, it's I'll use my favorite uh acronym, but I've got to give credit to Paul Sanki at Sanki Research because he's the one that coined it. But, so uh a decade ago, we had a NIMI world, which is like not in my backyard. >>
That that world transitioned to a bananas world. >>
Bananas is build absolutely nothing anywhere near anything, [laughter] >>
right? So, uh the bananas world existed from like uh 2018 to 2024. And when I say bananas world, that's about utility uh the ability to build infrastructure, not any any other bananas out there, right? um that does feel like it's changing a little bit in that hey um there's starting to be a little bit more sort of certainty and sort of uh based in DC uh uh desire to build stuff and so you're starting to see a little bit of pipeline construction activity uh heating back up you we went from a world where hey we're never going to build another pipeline in North America I think that's changing it's going to be get a lot more pragmatic than it was in 2010 to 2015 but you're starting to see this sort of willingness to make these investments but Again, it comes because the sort of uh >>
but did they math out like what pipeline is economical at current prices? >>
It's all a function of what the customer is willing to pay, right? And if you've got natural gas prices in the high threes and if you've got sort of wide or oil differentials and other things like a lot of the pipeline activity that we're seeing
Today is natural gas pipelines feeding the data centers. Ah, their willingness to pay is pretty high. And so, uh, that's really where we're it's it's not an oil pipeline world today. It's a it's a natural gas pipeline world. We go from we have no bananas to yes, we have no bananas. [laughter] I love that. I love please enjoy my uh 1920s cultural references there.
So going back to US energy and electricity again everyone you every headline or everyone person is like you know we have the chips we have etc. Energy is the bottleneck. You hear that over and over again and I think uh Jensen Wong said that again today in that uh CES energy is the bottleneck except we all know this right? So in my mind it's like oh it's all priced in but like as an investor what parts of this energy story to you still feel underappreciated or where there's still opportunities in a story where there's like literally anyone is aware of this fact the electricity constraints.
Yeah. So I I'd start with you know we we agree electricity is constrained the demand uh is going to keep rising. I would note it's not just data centers like we spent a lot of time thinking about US energy markets and you know they went from zero growth in terms of electricity demand from 2007 to 2020. Uh they've been growing like one and one and a half% recently. We think it's going to go to two and a half% per year. Doesn't seem like a big number but going from 0% to two and a half% in a big industrial uh system is is a huge one. Only about half of it is data centers. You know, there's lots of electricity demand coming from EVs and from the industrial system and so forth. So, but but where do we see the opportunity? Um I'd start with um certain utilities. So, uh utilities today actually trade at a lower multiple than they did a few years ago and growth rates are a little bit higher than they used to be. So, so that's like a little bit of an odd uh of an odd um uh thing to see. Um however what we think is hey the average utility is going to see some challenges from affordability issues and from regulation but the best utilities are not trading at a lot higher multiple than the average utility and their growth rate differential is way better. So to put some numbers around it >> you know eight years ago you had to pay an 11% premium >> to get 1% better growth. So the average utility group was going to grow six best-in-class utility was going to grow seven. you had to pay an 11% higher multiple for that trade. Today, the fastest growing utilities only trade 6% more expensive. So, actually cheaper relative to the average. >> They're going to grow 2% more. So, instead of 6 and a half, it's going to be eight and a half. >> That's pretty odd, right? Um, you're paying lower absolute multiples.
Do >> you have a theory for what though?
Um, I think people are worried about regulation. Okay. I think people are worried about rising interest rates. They're worried about affordability. And what you're going to see is the um pack will separate over the next three years. So it's rational that sort of the world has compressed in the way that it has from a utility perspective. But I think over time those that are able to execute will really be rewarded. Outside that I mean the picks and shovels types companies to the data center and re-industrialization buildout. We we still see a lot of opportunity. You multiples are up but they are becoming more predictable. Their growth rates are accelerating. It's it's more structural in nature. Who are some of those companies? I mentioned Caterpillar, but that's like >> Yeah, I mean the engineering and construction companies that are help building the large scale infrastructure and so forth. Um would would definitely fall in that bucket. You know, we look at some of the companies that are like aluminum smelters and so forth. Again, these are highly consolidated industries relative to where they were, you know, a couple decades ago. And so, you know, this is like it's it's the gold rush. Um who made all the money in the gold rush? It was the Levis and the picks and shovels companies. And I kind of think that's where we are. you might get the best like absolute returns in some of the direct ways to play this, but they might come with a lot more volatility and we think the sort of at least riskadjusted returns are are more in the the picks and shovels.
Speaking of volatility, very quickly, one of the interesting things that happened last year in data center world was we had that big outage at the CME um which was the result of an outage at one particular data center that was run by an operator called I want to say Cyrus one. Yeah, I think that's the name. Yeah. >> How how are you incorporating? You know, you talked about the CEO staying up late at night worrying about exactly this scenario, but do you as an investor in the infrastructure have to worry about operational risk as well? And then how do you actually assess that?
Yeah, we we do. I mean, um let's use pipelines as like the best example, right? Um if you own a company that owns oil pipelines and they have an oil spill, like that is a big problem. So, so we get a lot of questions on hey, how do you think about ESG and integrate ESG and so forth? And one of the key things that we do is we think about the incentives and we think about how these companies are doing maintaining their assets and what their local shareholder relationships are like and what their uh the integrity of what they own and operate uh are because yeah with infrastructure you know you operational risks have major asset impairment uh risks with them. And so again, for us, it's this big team around the world trying to do what we can to talk to not the CEO, but the plant managers and the sort of next rung down and and ask one CEO what he thinks about the assets of another company and are they maintaining them well and try to get some insights there because yeah, it's a key risk, something that that we worry about.
So, we're kind of in a post banana world in the sense that from the DC perspective, you know, I think the administration clearly has a much more liberal attitude towards approving various things. On the other hand, we and we've talked about this recently on the show quite a bit. Um, the local backlash particularly today at a centers suddenly people really anxious about that. we see these town hall meetings going viral and there's misinformation about there uh some things um when you think about like the utilities that are the rapidly growing ones the ones for whom there's perhaps an opportunity because they don't trade at a premium that um uh is uh is consistent with their growth potential. Do you worry about that aspect and do you do much time thinking about like yes on paper we know there's tons of plans to build more here etc. But will it actually happen given the realities of local politics?
Yeah. I mean I'd start with you know this there's been a lot of data center backlash and is it appropriate or not? I mean there are some utilities whose bills went up 15% last year. >> Yeah. >> So and then you think about a data center company um you know that doesn't create any jobs in the local market. I mean, there's construction jobs, but then once the data center is running, it's just kind of like a big empty shell with some refrigeration and some power, and you're not really doing a lot for the local economy. So, your your your sort of local residential customer uh who's paying 15% more and is not seeing any sort of economic benefit to the local area from that, that is inviting a reasonable response from the regulator to say, "Hey, we actually it's not in our best interest to do this." And so yeah, we're we're spend a lot of time on who is on the utility commissions. Are they elected? Are they appointed? Because because that can matter.
What has been the bill pressure?
I take it the elected ones are more sensitive towards >> uh all else equal. Unelected commission. you're saying, "Hey, they want to stay elected, and so they're going to do things that are more uh beneficial to the local uh electorate than than someone that's government appointed or governor appointed who would, you know, maybe do something that's, hey, I know the bills might go up a little bit, but but we actually want to invite this." I mean, just just to to put the magnitude of the opportunity. So, there's a utility in the Midwest. It's been around for about a hundred years. It currently has a uh system that's about 11 gigawatts. So, one gigawatt is about a million people. It's like the city of Denver. So this Midwest utility 11 gigawatts took him 100 years to get there. They currently have data center demand to build 15 gigawatts. >> Whoa. >> Think about that, right? 100 years ago. >> What's the name? I want to look this up. What utility is it? Can you >> I I get yelled at by >> All right, fine. We'll we'll we'll look it up. We'll look it up. >> We'll look it up separately. Um >> we'll use data powered AI platforms to figure it out. >> Yeah, I I some they'll kick me under the table if I if I if I give too many specific stocks, but um no, you just think about that, right? 100 years ago to 11 and and like by tomorrow they want another 15. >> That is really expensive. And so you're seeing this tension and I think um I think that's that's reasonable.
Do you play Power Grid ever? Do you know that game?
No, but I feel like I should. >> It's a board game. [laughter] It's a board game where you're in charge of supplying electricity to various cities. It's kind of fun. I >> I played the the board game Pandemic in like late 19 and and look what that led to. So maybe I'm a little bit scared. [laughter] It was your fault. >> Well, play power grid and then we can all enjoy an efficient electricity system. Maybe maybe things will change.
That was a great conversation. Tyler Rosenlick, thank you so much for uh coming on OddLot. So, let's stay in touch. Now, we're going to use our AI skills to backwards figure out what that you >> going to draw energy from the data centers to crunch the numbers clawed or whatever.
Yeah, Tracy, I really enjoyed that. It does feel as though if you're in the right place right now, there's just a mountain of money coming. I mean, who knows if you're like going to get it, but you know, between all of u you know, he talked about every country wanting to have more domestic uh energy security, the secular trends, etc. If you're in the right place, government spending more money just feels like you could stand in the right way of an absolute fire hose of money right now in this space. I mean, it feels to me and you know he kind of said it but the government is the key risk here the regulatory risk and also I take his point about even though maybe the numbers pencil out at current commodity levels if you look at future demand and stuff like that >> it might not work because your assumption is well you know in 3 years we'll have a new administration or maybe in another 10 years the pendulum will swing back towards clean energy or something like that. So that to me seems to be the big risk.
Uh just on the Venezuela point, I mean it's going to be a hard sell. I mean imagine who wants to pony up a hundred billion dollars and granted shared between a bunch of different companies presumably. You're it's still the same old regime. Um there hasn't been you know and then all the uncertainty there and then the fact that you know oil just isn't as isn't as valuable as it was several years ago. Who are the brave sellside analysts that are going to go on a field trip to Venezuela in order to inform their research on buying like PDVSA bonds or something?
Yeah, that's what we need. We need a sellside report like cuz the the thing that's fun about the reports that you like is they often take a lot of pictures. Oh yeah. So when it be we need someone to do a report like go into the pedas facilities like just someone takes a thousand photographs of like here is the state of this >> produ this facility this >> go watch an oil tanker being loaded up in Venezuela and tell us everything that you see >> how is it how efficient is it and so forth what it would actually take to repair it to >> I feel like I need to add a disclaimer onto that. Please do not go to Venezuela and do all this on our account >> on our account. No, we are not asking >> we're not asking anyone to go to Venezuela. >> We are asking someone in a professional capacity whose job would be to go there anyway to please include a lot of pictures in the uh cellside report, but we're not asking you to do it on our behalf. >> Was that a big enough caveat? Are we going to get from the lawyers?
The um the number we got to um reverse engineer what that um utility company is in the Midwest because those numbers are staggering. I mean, the fact that um what is it 11 gig? By the way, can I as an aside here? >> Yeah. >> Um energy math, I have a the hardest time wrapping my heads around it. >> I was thinking that like measuring one gigawatt as like powering Denver was actually a really really useful way about it. >> Except the problem is I already I always forget that. But okay, one gigawatt Denver. One gig Denver. >> Just tattoo it onto your arm, Joe, because you know that's a useful fact that you're probably going to be referencing for many years to come. And a gigawatt is different than a gigawatt hour. And so these are like separate things and so forth. But the idea that here a 100red years took them took them 100 years to get to 11 gigawatts and now they're projecting 15 gawatts more. I mean staggering staggering numbers. And I guess it makes sense why literally every company in this space is saying it's not chips. It's not it's the energy. On the other hand, maybe we have some incredible technological breakthrough, a deepseek moment for chips, and these chips use, you know, 100th of the electricity that could happen.
Well, I mean, again, going back to how we started the episode, you kind of saw a hint of that potential today. So, >> such a fascinating space.
Absolutely. Uh, shall we leave it there?
Let's leave it there.
This has been another episode of the OddLotss podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway >> and I'm Joe Weisenthal. You can follow me at the stalwart. Follow our producers, Kerman Rodriguez at Kerman, Dashel Bennett at Dashbot, and Kale Brooks at Kaleb Brooks. >> And if you want more OddLotss content, you should definitely check out our daily newsletter. You can find that at bloomberg.com/odlotss. >> And you can chat about all of these topics, including energy 247 in our Discord, discord.gg/odlotss. And if you enjoyed this conversation, if you like it when we talk all things energy, if you want us to figure out uh what Midwest company it was, then please like this video, leave a comment, or better yet, subscribe.
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