Horace Zona, DigitalBridge | theCUBE + NYSE Wired: AI Factories - Data Centers of the Future

Palo Alto studio connecting Silicon Valley and Wall Street. I'm John Furrier host of the Cube here with Dave my co-host. Hello, I'm John Furrier host of the Cube here in our Palo Alto I mean sorry New York City NYSE studio. We have a Palo Alto studio connecting Silicon Valley to Wall Street and I think it really is about the deep tech inner interfacing with Wall Street. That's the NYC wired program and open community. It's our AI factory series. We got Horse Zona here managing director digital bridge here seen many ways of innovation. Horse great to see you here in the Cube and NYC wired program. We're talking before we came on camera about historical perspective. Can't wait to get into it. >> I am too. Thanks so much for having me today. I'm excited to sit down and chat. >> So you're involved in a lot of the key infrastructure deals but also you have a historical perspective. You've seen the internet wave. You've seen the telecom wave. You've seen the SAS cloud wave. Now you got the AI wave. You know there's been a lot of talk around AI taking over the world and killing people through the anthropic nonsense. This bubble talk. Are we in a bubble not in a bubble? All that aside we are in the most massive demand curve I've ever seen in my career where you have all these forces in the confluence of these forces. As someone who's been seeing the waves, what is your take on this because a lot of us are seeing this as it right what Am I crazy? What are you seeing? >> Uh well we're seeing tremendous opportunity to make fundamental fundamentally driven very thoughtful investments across the entire capital structure. So as a firm we're unlike most GPs in that our entire focus is investing whether it be public equity, private equity, private credit, all we do is invest invest in digital infrastructure. So, it's that level of focus where our portfolio companies really give us insights about where the opportunity is. Um and so, to draw historical perspective, you know, I started in '93 uh as a banker uh within the media and communication space, really focusing on digital infrastructure. So, that would be, you know, broadband, wireless, fiber. Um and at times, you've seen very significant pockets of growth, but not without a um >> Yeah. >> a really detailed business model. And um that ultimately can end up in a bad place. Um and I'd say then to really roll that forward to today, we see a very healthy ecosystem with genuine demand drivers, and the supply is there to fulfill it. Um and so, not to necessarily just ape what Jensen says, but, you know, AI is a completely new form of compute. It cannot necessarily leverage your off of prior infrastructures. And so, as a value proposition, you know, we see a real opportunity there for end users and the developers uh to bring to marketplace that intelligence that people are willing to pay for. And that's obviously what um you know, this is all about. >> When you say new forms of compute, I I totally agree with you because I wrote a post a couple weeks ago said it's math that needs to be fed more math. And if you look at the matrix multiplication, if you look at the the density of the Nvidia architecture, it's mathematics that's driving all that activity. Now, the systems around it are getting tweaked. You got KB cache, you got roll of memory, um and they're getting bigger and there's demand for it. But there's also it's not over. You got the edge, but there's also an infrastructure on the cloud side. We have the internet's built. It's steady state. There's no debate there. The The hyperscalers, AWS, they're they pumped the last generation. You got Uber who built first generation app from columnar store to people, places, and things. So, a lot of stuff's kind of been done. So, it's like there's a shoulders of giants kind of mentality that's a lot different from the hey, let's kill the local loop telecom deal, bring in broadband, lay down new fiber. Web replaces this. So, there's a there's a displacement in the other generations. It doesn't feel like a displacement uh infrastructure. Um and because I mean, some will some stuff will go away and change and refactor. But what is your take on that? Because if you look at things like the internet really in the '90s, that was telecom. You had PBXs became digital, eyeballs on the you know >> Being being a valuation Mary Meeker had a slide, the online population was like a chart she tracked at Morgan Stanley back in the day. It's like, hey, more people are coming on the information superhighway, the web. That was just a curve, that wasn't just ramp. So, you have now people connected with SaaS and phones. How does that change your view on digital infrastructure? Because in a way, a lot of it's already out there. Sure. Well, we look at the infrastructure from end to end, right? Anything that is moving a bit is really part of what we think of moving or storing a bit is what we think of as digital infrastructure. So, that's towers, that's residential broadband, that's enterprise broad enterprise fiber and and broadband, satellite, subsea cable, of course data centers, and then high performance compute. I I don't like to use the neo cloud phrase. >> AI AI clouds, they call them now. That's what the core we call themselves. >> And so, what's interesting is that, you know, this is largely driven by the product and the need that that you're trying to fill for the customer. So, cloud computing is very simple, right? You're if I'm working on a PowerPoint in New York and you're in Palo Alto and we want to work on it together, we we need really very low latency for that for us to coexist. So we're not messing up with each other and and frustrating each other. Um AI is very different, right? I am now querying whether it's caught or chat or whomever with a task. And that task can be easy or complicated. So that latency is not necessarily as important today for AI compute. So that if I give it a very difficult task, if I've downloaded 10 documents, I want to I want it to perform several different analysis, I want a different presentation schemes, that may take 30 seconds. It could take a minute. Um And so I'm not I'm >> And we haven't even gotten into what >> real agentic compute is all about. So I'm I'm unleashing two or three bots to 24/7 discover under you know, analyze, find different opportunities. So I'd say that these are complementary networks, but they're different. And so you're really not getting into that innovators dilemma where one system is dislocating another. Not in not in our perspective. >> latency is a great point because if you're driving a car that's autonomous or you're not driving, you have a tons of or you have physical robot running a manufacturing doing heavy lifting, there's a safety issue. They need real time. So you want to have a policy. Again, that's I think where you're getting at that compute's different. >> Right. Exactly. So physical AI, right? The the robotics, that is a revolution that is is starting very, very early. In fact, we haven't made an investment there yet, but we're looking forward to that space and keeping a really close eye. >> Yeah, I'm really fascinated by your networking background, because I why I'm going there is because, you know, you know, Scott McNealy had an expression, network is the computer back in the Sun Microsystems days. You You're smiling, you remember. I actually interviewed him in 2013. He's And I said, "What do you think about cloud?" He goes, "It's He said, I just should have called it the cloud, right?" Cuz I was like, it is the computer. But, if you look at Nvidia, the whole premise of their entire architecture's networking based. Mellanox was the beginning of it. No one wanted to buy that company. There was only like three buyers. Nvidia picked it up. InfiniBand worked that made the whole system happen. But, now the KB cache is so critical, and it's growing. You got disaggregated serving. Hello, inference. So, you're starting to see that new compute architecture emerge. How do you look at that? Because the next question would be, okay, if AI factories is a big fat node, big Texas data center, gigawatt, big metro node, there's going to be edge factories. A telecom tower has a building. They got power, and they got networking. And also, they got RF on the on the other end. So, you're starting to see, okay, with you inject intelligence, that's a That could be an investment. These I'd love to get your reaction on that, because, you know, I've been saying, like, look at if you inject intelligence, that might even change how licensed spectrum might operate. And that's just a haymaker, but it like that's kind of the thinking that people are starting to come to come to uh grips with. What's your thoughts on it? Cuz that's like That's an arc. It's not maybe next year. It might come. That'll power things. >> Inference is really the big tent in the pole. Right, that's where there is tremendous economic opportunity. That's where at an enterprise level, um we can see a tremendous uh uptake in the the the compute um for those businesses. It's largely going to be productivity and efficiency enhancing. Um if you're not doing it, your competitors are doing it. They're going to eat you alive. Um and so we will see the implementation of that uh coming very fast here over the next several years. And so what we're really investing in are the data centers um and the high-performance compute businesses, the chip uh the chip factories that will make that happen. The pick the picks and the shovels. Um and what's interesting is that post-COVID when we saw such an uptake in cloud computing um where a 20 MW or a 50 MW data center was a very significant investment uh only 3 years ago. Now, 2 years ago we see hundreds of MW data centers. And of course now we see gigawatt data factories. Now that is not all cloud computing, but what we've seen is that uh demand get driven and the supply has to come to where the power is. So now we're getting into this whole NIMBY thing. Um where it is a a significant concern as an industry. We're very focused on doing the right thing for our communities um where we live. And so what we want to see though is um the compute happen and bring it back. So whether it's through a tower, through a fiber to where the end user needs it. >> On Digital Bridge, what's your um parameters or I guess the line where you don't invest because you brought energy up. Um energy's the bounding function. Does that take you off the reservation so to speak or is that in line with what you're thinking because you know, we're seeing geothermal use cases coming out out in the west. Um I would see a terawatt could come out of the super hot rocks out there. Um that's like the journey to the center of the earth for energy. We don't know yet we don't know, but what And there's also energy futures. Is that off scope? Is that line? >> in fact our co-founder Mark Yanzi has been speaking about this now for quite some time to the extent that even with SoftBank making an offer to acquire Digital Bridge, we went out and we've had made a subsequent agreement to buy Arc Arc Light Capital and energy infrastructure investment business. So yes, we do see and value that area and we look forward to partnering with those people in the near future. So yes, energy is at the core of many of our discussions and and there's an opportunity >> Of course, what's what's the mindset? I'm learning a lot from you on this session and so I'd like to take a few liberties if you don't mind. When Jensen came into New York a couple weeks ago with KKR Goldman, all the players, Brookfield I think was in there, few others. >> Goldman. >> Goldman was in there. So okay, what I saw was Jensen basically trying to get the monkey off his back on this whole circular financing thing which he was taking a lot of heat. Bloomberg had a story, they made up a story or they tried to hang a story out there. I don't think Nvidia is nefarious in the circular finance. I think they're just making the market, that's my opinion. But I think what I heard him say is that look, I want to bring pros in. We need financial capital, financial players, partners to finance the physical plants. I'll use that word loosely. And then so okay, I get that. That's a good thing. And then I say okay, that's the physical plant. So how do you see the financial world coming behind it because a lot of these old school data centers have old school contracts, 10-20 year leases, the contracts are coming in around three to four years, back end years are not loaded at all. They may be on two years visibility. So there's a lot of risk. >> They're yeah, they're they're they're all in >> How are finance people looking at this because the numbers aren't rounding errors. They're significantly B's and maybe a T in the future. >> That's true. So, here's maybe a um a more simplified way to think about it. Uh let's let's uh talk about the infrastructure itself. So, data centers historically have had a useful life in the 10 to 15-year time frame. And so, banks and institutional investors and private credit have all invested, whether you have a an investment grade off-take or non-investment grade off-take, and brought capital to table to actually finance that growth, to go from that 20 uh megawatt data center to that 1 and 2 gigawatt data center complex. So, the uh so, finance has been very constructive there. Um at Digital Bridge, our credit fund uh worked with Magnetar to stand up CoreWeave's first two GPU financing vehicles, which at the time, CoreWeave was not a very significant company. >> the numbers were big, too. >> And right. >> A lot of people were throwing shade on that deal. >> Well, it was $2.3 billion in the first deal, $7.3 in the second. We had a a fan- they had a fant- They had negotiated a fantastic contract with Microsoft. And so, what we brought to the table was some creativity and some belief that this um infrastructure, these chips, had significant value because of the off-take, right? Microsoft had a 5-year um compute deal with CoreWeave, and we helped finance that. And so, >> That was bankable in your mind. >> Completely. Absolutely bankable. Now, the banks wouldn't have done it, and institutional investors weren't ready to do it, but pri- private credit was ready to do it. Um so, I would say Now, now take a step back from those infrastructure deals. 5-year compute deals for chips, 15-year leases with pri- uh with data centers. You know, there's a duration imbalance here, right? So, um what we have found is that there are opportunities to finance both stacks at the same time. So, finance the chips and the data center all at once or finance them independently. And so, really every situation is is somewhat, you know, different. And but we can work with those fundamental >> was creativity and not being hung up on kind of like >> not needing a rating, right? Using our own fundamental uh insight and knowledge of the space and uh trying to find a right resolution for the company, CoreWeave, which is um at the time uh looking to uh for sources of capital and hadn't found many. Um and then working for our LPs as well. >> So, this is not an obvious thing. So, you have to have domain experiences. This is where Do you see this big part of the market because I think this could be more of the trend. But domain risk management's going to come from domain expertise, not just numbers. So, basically you made a bet. You made a bet on CoreWeave. Basically is what you did. >> And and a and a great contract with Microsoft. >> Yeah. >> Um and Nvidia as well, right? We we part of our fundamental analysis was the belief that that ecosystem that group of companies >> Yeah. >> wanted uh to uh Opening Eye to succeed, right? Cuz that's where ultimately the compute was going. >> was a pretty obvious bet, too. They were on a trajectory. Compute we'll be at the CoreWeave conference in 2 weeks, too. We'll get more data from them. >> Of course. But back to your point when Jensen came in and and announced his $500 billion MOU, I'm not sure at the end of the day what problem they're trying to solve. Um we do believe chips are financeable. Um now, does the institutional market feel that way? Does the bank market feel that way? There's evidence that they're they're coming to grips with that, but not on the scale order of how data centers have been financed. And let's remember that if you have if it takes $100 to build a data center, it probably costs $250 for the chips that go into the data center. So, there's a scale order there that needs to get financed. >> why you break it out. >> Correct. So, I think that, you know, what Jensen and NVIDIA are trying to accomplish is to provide um a valuation floor of some sort where more financing sources can look at a 5-year average life or a 6-year average life and find comfort in that. Like we have as well. >> Yeah. And of course, they have the backstop options. They have all kinds of co- trajectory trend data. >> Lots of tools in the bag. >> Yeah, and it's I think that's a market making. What what Do you think that that meeting was really more about confidence too and or am I just conspiracy theory thinking it was just shaking off that noise around backstopping and circular financing? Cuz they got the cash. Why wouldn't you make the market? If I'm motivated to build a physical plant that people can use my chips in. And by the way, there have been durability numbers too on them. >> I From what I can see and for transactions that we have evaluated, I don't think that there is a fundamental circularity to these financings. I believe that NVIDIA is building a business and executing a plan where they're getting compute out into the marketplace. But, I can tell you uh that they are hands-off after a certain point. And they want the marketplace to evolve and thrive without necessarily their micromanaging. And I I I feel confident saying that. So, it's it's a >> It's a nice invisible hand strategy for them. All right. So, what's the focus for you guys now? Because, you know, you got a lot of um activity. I mean, I think we're at the be early innings of this build-out. The edge is going to be massive. I think it's it might look a lot like the early days of the uh internet uh out when you saw UUNETs of the world and Exodus is coming out. Metro pops were popular. I mean, I I was talking to Envidia like if you're going to have an AI factory in Texas, why not have one in New York? Like why can't I just put a metro factory in New York and >> Power. >> Well, I mean a lot of >> Access to power. >> of dormant power in a lot of these buildings. I mean, there's an argument for regional topology. >> We've seen, you know, some >> I've seen a couple of different business models as of late that are really trying to just do that. So, take advantage of opportunities where you have physical infrastructure with available power and connectivity and putting those together to present a a a valuable you know, business plan for inference compute. And I I think that that there there are a lot of merits to that, but I would also say that this is not an easy business. >> No, it's not. Where's the data? I mean, where's the market data? >> Right. So, bringing these three things together at a time and place with the confidence of your off-taker to sign that 5-year contract or that 15-year contract. That's that's why we have a number of portfolio companies that have been quite successful. >> Have you seen the deals where the off-take contracts were significantly large and the company has yet to stand up and turn on clusters? And is that a symptom of a flawed execution or a lack of market? Because, you know, you could I could have a billion dollars in orders. Put it in escrow, but I got to actually go develop deploy. The risk of deploying. >> I You know, I think that there's a lot of speculation in the marketplace about the announcements of deals and now let's see how they get executed. Um, I'm sure as in any other hyper growth phase, we will see some projects that don't move along on the on the on the advertised timeline because of a number of challenges that you know are honestly you know, too many to to list. Um, but I don't think that that's a fundamental flaw in the business proposition. >> Yeah. >> Right? That gets back to the expertise, the focus of those those operations and their ability to deliver. >> final question. What are you excited about now on from a business plan standpoint that you're looking at the kind of category? Is it the data centers? Is the chips? What kind of transactions are you excited to do deals on and will invest in lean into? >> So, we we remain excited about the entire ecosystem. We see predominance of activity in non-investment grade data center development. The high performance compute businesses are largely all non-investment grade. And then your inference cloud companies are of course all of nascent. They're two, three years old. They're non-investment grade as well. That's an awesome place for us to invest. >> grade mean to the average person? >> Yeah, so that that means you know, you don't have a rating from Moody's or S&P that says, you know, you're triple B and above. So, it doesn't >> It requires due diligence. >> It's size and age of operations. It doesn't necessarily mean a company is any less worthy. And that's why we we find them to be terrific places to >> That's where opportunity is lying. >> Cuz you can arbitrate the non-rating value extraction. >> Well, we we like to think of it as as helping these markets develop and just go hearken back to the the initial core weave GPU financings just three years later, you know, many thought that they were more near investment grade than or Yeah, squarely investment grade than non-investment grade. >> Having having Nvidia involved kind of makes it a quasi investment grade. That's a triple A in my mind. So, of course, great to have you on. I'll go on forever learning a lot because I think the the bounding function is not just energy, it's finance. And I think what you're doing and the kind of creativity, bringing the domain expertise, and looking at this thing holistically is where I think a lot of the growth will come from. So, >> Well, it's a real pleasure to sit down with you. >> Yeah, I appreciate I'm John Furrier, host of the Cube. Yeah, AI infrastructure is going to continue to boom. It's only going to get bigger and and bigger and global the edge and the energy and the financial functions are going to be very important to make sure things can hedge the risk, understand risk, but also the upside potential. And AI infrastructure is certainly not a bubble. The demand's there. The systems are in place. It's a matter of the entrepreneurs and the capital finding those constraints and making it happen. We're doing our part here in the Cube. Thanks for watching. >> Clear.