Marc Lipschultz, founder and co-CEO of Blue Owl (OWL), reaffirmed the firm’s commitment to financing Big Tech’s artificial intelligence (AI) initiatives on Thursday, stating there are no plans to slow down investments in this area. This comes as shares of the private credit heavyweight surged by as much as 13% following its quarterly earnings report, underscoring strong asset management growth.
Blue Owl’s asset management increased by 15% year-on-year, reaching $315 billion. The growth was particularly buoyed by a 6% increase in its data center financing and leasing business. “We saw overnight, obviously, all the tech announcements … most notably, just about every single company talked about increasing their capex even more,” Lipschultz noted, indicating a direct correlation between Big Tech’s capital expenditures and Blue Owl’s digital infrastructure and triple net lease businesses.
In a significant development, major players such as Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), and Alphabet (GOOG, GOOGL) revealed their quarterly results on Wednesday, collectively raising their AI spending forecasts for the year from around $670 billion to over $700 billion. Lipschultz described the current pipelines as “compelling,” highlighting both the attractive risk and return potential.
Blue Owl’s earnings largely met analyst expectations, notwithstanding a challenging quarter marked by declining private credit returns. Distributable earnings rose 11% to $293 million, or $0.19 per share, and fee-related revenue climbed 13% to $700 million. Analysts had anticipated the firm would yield $316 billion in assets under management, alongside $287 million in distributable earnings and $688 million in fee revenue.
However, Blue Owl did report a 1.1% net loss in its direct lending business, which constitutes over a third of its total assets. This is a notable decline compared to the 2.3% net return posted in the first quarter of the previous year. In an earnings presentation, the company revealed that fundraising from its wealth channel has decreased compared to last year, although institutional flows have somewhat mitigated this decline.
“I think institutions are actually seeing that this is an appealing time to look at credit. In fact, some who perhaps had paused credit might very well be coming back,” Lipschultz observed, indicating a shift in sentiment among institutional investors. The firm has been navigating a tumultuous landscape since it postponed a planned merger last November between one of its non-traded private credit funds and a larger publicly traded vehicle, citing “market volatility.”
The private credit sector has faced rising investor redemption requests since then, and despite Thursday’s stock surge, Blue Owl’s shares remain down 35% year-to-date. Concerns loomed ahead of the earnings report that the challenges facing the private credit market could signal worsening credit quality or impede the firm’s fundraising efforts.
Lipschultz emphasized that Blue Owl is strategically reducing its exposure to software firms that may be at risk of AI disruption, especially with a pivotal refinancing moment on the horizon in 2028. He added that, in worst-case scenarios involving disrupted portfolio companies, Blue Owl possesses more safeguards and capital cushions than its private equity counterparts.
“The sky didn’t fall,” Oppenheimer analyst Chris Kotowski remarked in a Thursday note following the earnings report, maintaining an Outperform rating on Blue Owl. “We think there is considerable upside potential.” As the firm embraces opportunities in the evolving landscape of AI financing, it remains part of a broader trend among private credit players.
Blue Owl’s ambitions in data center financing come with inherent risks, placing the firm among those pioneering innovative financing arrangements to accommodate Big Tech’s escalating debt requirements. Lipschultz’s focus on the AI boom follows a similar sentiment voiced by other industry executives, including Blackstone’s COO, Jon Gray, who recently characterized the firm’s pivot into AI infrastructure as “the single most important thing” for its long-term growth. Blackstone has also launched a dedicated unit aimed at investing billions into data centers and AI-related infrastructure.
As the private credit market continues to evolve amid heightened competition and shifting investment dynamics, all eyes will remain on firms like Blue Owl. Their increasing focus on AI financing may serve as a bellwether for the sector’s resilience and ability to navigate new challenges in the technology landscape.
