Great. Thank—uh, good morning. Thank you, everyone, for joining. I'm Samik Chatterjee, and I cover the hardware and networking equipment companies at J.P. Morgan. I have the pleasure, and we are really thankful for the company making it an annual event of hosting both Wendell and Ed here from Corning. So thank you both for coming to the conference, and really, again, always a pleasure to have you every year. What I'll do is I'll hand it over to Wendell to go through some of his prepared remarks. Before I do, there would be potentially forward-looking statements. If you have questions on that front, please go look up Corning's website. Ann is here in the room. She can help you with any forward-looking statements as well. With that, Wendell, over to you.
Thank you, Samik. Hello, everyone. It's always great to be here with you. Now, at this very conference last year, I walked through the fundamental elements of our Springboard plan to accelerate our revenue and earnings growth by adding more than $3 billion in incremental annualized sales by the end of 2026. Now, what we said then was that we already have the required production capacity and technical capabilities in place to deliver the sales growth, and the cost and capital are already reflected in our financials. Therefore, we expect to deliver very powerful incremental profit and cash flow, leading to our earnings growing much faster than sales. As I said, because of our confidence in the plan, we started buying back shares in the second quarter of 2024. Here we are, together again. What a difference a year makes.
Since we last met, we've made tremendous progress. In 2024, we grew adjusted free cash flow 42% for the full year, and we repurchased over a quarter of a billion dollars' worth of our shares, and we plan to continue buybacks in 2025. Earlier this year, we actually upgraded our high-confidence Springboard plan by a billion dollars to now add more than $4 billion in annualized sales and to achieve an operating margin of 20% by the end of 2026. A few weeks ago, we reiterated our commitment to delivering this upgraded plan on our first quarter earnings call. We also reported continued strong execution in quarter one. Year over year, we grew core sales 13% to $3.7 billion. We grew EPS 42% to $0.54, more than three times the rate of sales growth. We expanded operating margin by 250 basis points to 18%.
We expanded ROIC by 300 basis points to almost 12%. Now, interestingly, if you take a look at our quarter two guide and you compare it with our Springboard starting point of quarter four of 2023, we expect EPS to be up about 50%. Our stock is also up about 50% over that same period. When we deliver our $4 billion high-confidence plan and our 20% operating margin target, we will grow EPS 100% from our Springboard starting point. We have plenty of growth ahead, and we're well-positioned for upside variance to that plan. That is going to be my main topic today.
That is because given the strong start to Springboard and the great growth opportunities we have in front of us, investors are actually asking us less and less about our ability to execute, and more and more about how global uncertainty could impact Corning's ability to deliver that plan. The news we have witnessed just over the past few days is a great example of that uncertainty. At Corning, our approach to uncertainty is to position ourselves for upside variance. On our quarter one earnings call a few weeks ago, we shared with you how we handle downside risk. First of all, on tariffs, we said that our long-standing philosophy to locate our manufacturing operations close to our customers serves as a natural hedge against tariffs and mitigates the financial impact.
Our quarter two EPS guidance included the minimal financial impact of the then very high 100%+ tariffs between the U.S. and China, which was only $0.01-$0.02. Of course, the situation is already looking up, based on what we've all learned so far this week. We also shared that the impact of a potential economic slowdown was already built into Springboard as part of the $2 billion risk adjustment we made at the corporate level to translate our $6 billion internal plan into our $4 billion high-confidence investor plan. We modeled the impact of different slowdown scenarios on our growth plan, including a shock case using the worst downturn in the last 25 years. We were well within our risk adjustment. These were just a couple of the many reasons we reiterated our high-confidence plan despite the current global uncertainty.
Now, thankfully, uncertainty is actually a two-sided distribution. Today, I want to turn to the other side, the significant potential upside variance to the Springboard plan. I'm going to give you three examples. I'm going to start with GenAI. First, in our enterprise business, where we report sales for inside the data center, we saw a record $2 billion in sales last year. In March, we upgraded our 2023 to 2027 enterprise sales CAGR from 25% to 30%. Now, the primary technical driver behind that growth is what the industry calls the scale-out of the network. That basically means that hyperscale customers are scaling out the GPU clusters with more and more connected AI nodes of server racks, or simply put, larger neural networks. Because each AI node is connected to the others in the cluster by fiber, this creates more volume for Corning.
That is what is primarily reflected in the 30% enterprise sales CAGR. Our upside variance to that growth rate inside the data center is driven by what the industry calls the scale-up of the network, as hyperscalers create more capable nodes that move from less than 100 GPUs per node today to hundreds of GPUs per node in the future. Historically, an AI node has been within a single server rack. As hyperscalers scale up, AI nodes are shifting to stretch across multiple server racks. This causes the distance to link these GPUs within the node to get longer. This will cause the links to reach about 100 gigabit per second meter, what we call the electrical to optical frontier line, which roughly marks the point where fiber connections become more techno-economical than copper.
Now, to help understand the size of this upside opportunity created by crossing that frontier, a single Blackwell-like node has more than 70 GPUs with more than 1,200 links using more than two miles of copper. As that node scales up, those two miles will be replaced by fiber connections, and those miles will grow over time as more and more GPUs are included in the AI node. Additionally, as data rates rise with more capable GPUs, our upside increases further. This opportunity alone is two to three times the size of our existing $2 billion enterprise business if we are successful technically. We are working with key customers and partners as we speak today on making that future a reality. Now, you'll often hear folks in the industry talk about co-packaged optics or CPO. That is one of the key technologies that enables this scale-up with optics.
In fact, just yesterday, we announced a collaboration with Broadcom to accelerate their processing capacity with co-packaged optics. You are going to hear a lot more about this area in the near future. That is one. Another example of upside variance tied to GenAI is playing out in our carrier business. We have been studying this space for some time, and we have been seeing that most long-haul routes were approaching their maximum data rate capacity, creating a need for many new high-bandwidth, low-latency links between cities and data center campuses. This essentially requires a rebuild of long-haul networks. Density, it turns out, is every bit as critical outside the data center as inside. To create a denser solution, we took our core innovations from inside the data center and applied them to this outside plant density channel challenge. We introduced a new technology connecting data center campuses.
In the industry, this is referred to as DCI or data center interconnect. We shared last year that we had reached an agreement with Lumen Technologies to provide our new GenAI fiber and cable system that enables Lumen to fit anywhere from two to four times the amount of fiber into their existing conduit. The agreement reserved 10% of our global fiber capacity for 2025 and 2026. We have fully commercialized this product set. We now have three industry-leading customers adopting the technology. That being said, we are just in the very, very beginning of this new market. We expect this business to scale rapidly, reaching a billion-dollar opportunity for us by the end of the decade. Now, I will turn to my third example of upside variance, which is solar. At our March IR event, we shared our low-risk, high-return strategy to re-enter the solar market.
We generated over $1 billion in cash from 2020 to 2024 in this platform, and we expect 2025 to be another year of positive cash flow. We funded the expansion of our manufacturing assets with the growing cash flow generated from the assets we acquired for less than 10 cents on the dollar, customer funding, and government support, all while generating positive cash flow every year. As a result, we have now built a platform for rapidly accelerating growth. We made process advancements to serve a higher-end chip segment in semiconductors, and we are on track to double our semiconductor business by the end of the decade. We activated idle assets to serve the need for domestic solar polysilicon, and we added the capability to transform our polysilicon into higher-valued domestically made solar wafers, all integrated together on our campus in Michigan.
We now have committed customers for 100% of that capacity available in 2025 and 80% of our capacity for the next five years. Now, because we have built this platform so quietly while growing our cash flow, our new solar map has not garnered much attention from investors relative to the significance of the opportunity. Let me quantify this sum for you. In quarter one, we generated $200 million of sales in the map. We expect to triple that run rate by 2027, adding $1.6 billion of new annualized revenue to Corning's earnings power. I hope that can help everyone understand the upside potential of that new map. To wrap things up, we have built a high-confidence Springboard plan that is well-positioned to provide investors with upside variance. With that, I'll be delighted to unpack this more with Samik and take some questions.
Thank you. Amazing.
Let me, since you talked about the macro already, I won't go in too much into that, but would it suffice to say, given some of the announcements over the weekend or on Monday, in terms of how you're thinking about the macro, is a lot more improved relative to where probably your thinking was, during the time of the earnings call?
It certainly seems that the probability of using that risk adjustment in the near term appears less. That being said, when we build Springboard, to provide investors a high-confidence plan, we always try to build into that $4 billion an economic cycle. Because if we don't build that in, right, then I can't give you a super high-confidence plan. Yes, it does make it much more likely that we'll be at the six than the four, if that's what you're asking.
Yep. Yeah. No, great.
I'll start off on, and we'll focus on solar, but before I do that, I mean, you did mention, on the earnings calls as well that due to the tariff policies, you're seeing early signs of stronger demand for your U.S.-made innovations. Maybe unpack that and how much of that has come in just on your sort of solar business versus where else are you seeing that in your broader portfolio?
We're actually seeing it across our platforms. We're, in optical, we're seeing both new and existing customers look to take advantage of our U.S.-origin assets. We're unique in the world, which is the two largest and lowest-cost fiber facilities in the entire world are both in North Carolina and they're both ours, right? We have that supported by cable and connectivity. That is a unique asset.
With tariff pressures and increasing push for domestic content, we're seeing a large number of folks approach us for access to those platforms. Some will be significant enough that you'll see announcements in, you know, the coming months. We're also seeing a similar type behavior in our life science platforms. We're seeing similar type behavior in solar, as you say. We're seeing similar type behavior in our mobile consumer electronics businesses as people seek to source more locally. We're still sorting through the size of this and how much is moving from, if it's an existing customer, how much is moving from one of our other sources, right? If it's a new customer, then that's found revenue. We're still working our way through it. It's too early to embed in our plans, but it is a source of upside variance. Okay.
Maybe I'll just follow up on that. Obviously, there's one part of it, which is how much of that is an incremental or a new customer versus existing, but also where does your capacity stand today to even onboard a new customer?
It all depends on what the product set is. We still have the capacity in place to support that Springboard plan without having to add significant amounts of capital. I mean, that was really sort of the core of Springboard. Basically, there was an ability for us to create an entire Corning in terms of earnings within the four walls of our existing footprint as we filled up that capacity in our enhanced productivity. That still is all in place.
The key thing that will trigger whether or not we need more capacity will be how quickly do we get to that 100% growth from the original EPS at, at Springboard. The quicker we get there, the more likely it is that we'll add to our capacity sets depending on the products. Where you'll hear rumors of our tightness, which I know you run into, is on these new GenAI products where, because of the uniqueness of our product set, we are experiencing more demand than we can keep up with. It is not a capacity situation at large. It is turning our production for these very, for these new product sets and getting the productivity of that, of those new product sets up. That is what's causing that. We are getting more share than we counted on originally.
That's why you always, when people complain that they can't get enough from us, what you hear, that's what it is. It isn't we're out of capacity. It's just that product set's having explosive demand. That makes sense? Yes.
Okay. Let's move to solar. And do you want to take the opportunity to ask you to sort of dive into that opportunity a bit more? It's obviously your newest one. I agree. I mean, it hasn't got the investor attention, particularly in terms of the magnitude that you're talking about. So, maybe just outline your strategy there. You're thinking about what this, what the driver for growth is, and then we'll go into maybe a bit deeper into the solar business.
The driver for solar is super simple, right? And the strategy is super simple, right? Let's do the strategy. Let's do the driver first.
The driver is there's 50 gigawatts. Think of a gigawatt as being about the equivalent of a nuclear power plant. There was 50 gigawatts of solar capacity installed last year, in the U.S. Hardly any of it came from the U.S. It is all imported, right? Very small amount is made here. We looked at that opportunity and said, you know what? That is not going to stand. People are going to want, since it is the fastest growing and it is the largest incremental adds of capacity, people are going to want at least some U.S. source. That then plays to the strategy piece, which is we saw we had the ability to get assets fundamentally for free that we could then activate, turn into solar.
Because of our deep engineering and technical capabilities, we could move up the value chain to basically be able to displace what largely comes in from China-based suppliers into this market. All we're seeking to do is basically take share. We're not counting on solar to grow. We're just counting on us taking share with the domestic production. Therefore, when we say we've signed up for customers to take 80% of our capacity just so far for the next five years, that is showing you sort of how we feel about where we are in that process.
Great. The financial strength of solar companies sometimes comes into question. There's also uncertainty around government policy. I think we've seen some again over the weekend.
Like, so can you tell us about the risk profile to your solar business, customers, financial risk, technology, sort of, and government policy, most importantly, which seems to change very frequently?
I think the right way to think about this is, and Ed did this pretty well at our IR event, is, we feel there's relatively low risk to the revenue because we've already signed up for it. Now we've got to bring up these assets, right, and make wafers new to us. So we've got to ramp those up and sell them. The real impact of government policy will be what will the relative profitability of those assets be? There are scenarios of government policy where that, profitability will be well above Corning's average. There are scenarios of government policy where it can be a little below Corning's average.
One way or the other, we're highly confident they will make more money for Corning investors with this solar platform than we would without it. The question just is, back to upside variance, how much more can we make? If you were to take a look at the current mark that just cleared Ways and Means, it's very advantageous in that current mark for us. You know, it's politics, right? We'll see how the whole thing works out. That's just a matter of how much upside there is for us in profit. Would you think that's fair?
Yeah, I would agree. I also think, you know, if you go back to Wendell's point about the number of new installations, how impactful solar is, we don't see that necessarily changing. It's a low cost of energy. It's a critical source of energy.
The most important thing that's changing is it's onshoring. For us, it makes it, you know, higher probability of our ability to sustain the business and be a critical part of the supply chain. There are no U.S. wafer makers today. We will be the only U.S. wafer maker. To the extent it helps with someone else's cost, someone who's making a cell or a module, that makes our capacity that much more valuable to them for things like domestic content and so on.
If they choose, if government, for instance, chooses instead to tariff to get domestic as opposed to an approach of tax credits, it'll just work its way out in price, right? We'll make the money, but then what the margin % is, if you get it in price, is a little different than getting it in a credit.
That's what's moving you around between where are you relative to our average profitability. Does that make sense? Yep.
Okay. Got it. A lot of investors I talk to think about the $2.5 billion 2028 target as going from zero to $2.5 billion and see that as a very steep ramp. Good that you shared sort of what you're doing already, but maybe dive a bit deeper into sort of the $1 billion kind of run rate that you have for that business. What are you doing exactly there versus the incremental sort of $1.5 billion, where that comes from, and what share does that imply of the total market?
Yeah. Today our business is about 50-50 semiconductor grade polysilicon and solar polysilicon. We started, restarted assets that had been idled, as Wendell described, back in around 2021, and we've ramped the solar component.
When we took Hemlock, it was really semiconductor poly, and we've grown that from, you know, $500 million to $1 billion over the last four years or so. We're adding more poly capacity that's coming online this year. That will be, you know, a good hunk of what we see impacting us in the back half. We're adding the ability to make ingots and wafers, which will also come online, but it'll be a little bit slower. It's newer technology, and it's, you know, really starting from zero to where we are. That's sort of what's driving the growth from the $1 billion. It'll be predominantly in solar. Semi, semi-capacity, semiconductor poly cells for us will also continue to grow. We expect that, you know, to double over, let's say, the next five, six years or so.
You'll see nice growth there, but a lot of the growth will come from the solar side. And, you know, the only other thing I would say is that I think what, you know, what will allow us to be able to get to that $2.5 billion run rate is mostly the domestic supply chain being built out here. You saw an announcement from us. We signed up with SNEC and Heliene. They're actually building out capacity. So when you take our ability to supply the U.S., it's, you know, 20% maybe of the installed base, you know, that would be like a share target for us, something along those lines.
When we're fully ramped. Yeah. When we're fully ramped. Yeah. Okay. Let me ask you one on optical, and then I'll open it up to the audience if there are any questions.
You mentioned you have raised the enterprise, the optical enterprise CAGR target at the investor day from 25% to 30%. The question which you've got, I'm sure, from investors as well is more about visibility into the next year. What is the visibility that your customers are now willing to provide you, particularly given that you're capacity constrained on some of these GenAI products? Like, I'm assuming you get a longer visibility on those than others. How would you sort of characterize 2026 or early indications for 2026 shaping up?
We get very good visibility. Having products people really want improves customers' willingness to share, we find, right? So we have pretty good visibility. I think most of the dynamics is around when you hear different things in the industry, we will experience them differently because of the breadth of our footprint.
What happens with a given hyperscaler or a given player in GenAI, if they, you know, let go some leases someplace there or do something like that there, it is more about who's going to get those GenAI loads. One way or the other, they tend to find their way back to us. We have to worry less about which players we're aligned with and how each individual player is doing in that particular piece of the industry as we do on really how is GPU growth working in the scale-out piece.
Are the clusters becoming bigger?
Yes. Really good, easy visibility for that. I think it's probably one of the most studied things in the world is how many GPUs you're going to sell every year. There you go. There's that, right?
and then the real uncertainty we just have not built into the plan, which is, does a brand new link fall to optical? That is why we did not put the scale-up piece in the 30, because that is a technological node that has yet to occur. It would have to occur, which takes a new ecosystem built. It would have to get adopted, and our solutions would have to get adopted. We just do not count on that until we hit the node. Does that make sense?
Yes. Okay. Let me see if anyone in the audience has a question. There is one here. Sure. What are you seeing demand trend-wise in terms of Hollow, you know, are you having any manufacturability issues with it? And is there any margin or pricing uplift from that technology?
Now there is an inside baseball question. Hollow core fiber, man.
That's some arcade stuff, man. Good for you. For those of you who do not know, this is a technology that has been studied for many years. I worked on it personally when it was photonic bandgap fibers. What it is seeking to capture is that the speed of light through air is about 30% faster than the speed of light through glass. Okay? There are situations that could potentially emerge in GenAI where that 30% matters. Today, with like high-speed traders and things like that, what we do is we will straighten out, we will use very high-performance fiber, and we literally just straighten out the links so that the light does not travel as far. They locate relatively close, and that is their advantage for people who play in that microsecond sort of game. Okay?
There are technical futures in which GenAI believes that you could end up with clusters that are going to span enough distance that need to be synced depending on where you put the shards, right? You'd want to have lower latency, and that 30% will matter. Technically, I don't know, right? 30% in everything that's in a network, 30% playing around with the speed of light in air versus glass, I'm not convinced has a super powerful value prop. That being said, yeah, of course we'll do it, right? That's what we do. If it does happen, that is complex enough and different enough that it'll be a new fiber cable connectivity system that we will be a significant player in. That will have a different pricing entirely, right? Wow, I wasn't expecting that question. Good for you.
Maybe, when staying with optical, you talked about the carrier side of the business, DCI being a big driver of the growth there. Maybe parse that out in terms of your outlook for growth in DCI versus what traditional carriers have been doing. Is it still a bit sort of depressed relative to what you would expect at the current levels, and do you see a catch-up there eventually as well?
What we see in our traditional carrier business is, you know, their deployments are relatively steady. What happened is during the pandemic, they built up inventories, and then they were well above their deployment levels. What they are doing is they have just sort of been drawing that down, which caused a lot of people who are in that industry, suppliers to that industry, for that to go through sort of a cyclical downturn.
What we're now seeing is that inventory looks like, and from our analysis and direct discussions with them, that they will now start purchasing much closer to the deployment levels. We're seeing that in our order books, and we think sort of the ground is there for this business to start gr owing nicely this year.
Okay. Last question, and I'll make a hard pivot here to Mobile Consumer Electronics, but rather than sort of talk about the industry, your primary customer there, there's a lot of innovation supposedly coming on foldables, and there's also need to go support the customer in additional regions given their exit from China. How are you feeling about the basket of opportunities there? What are you more excited about?
I never talk about anybody who lives in the area code of Cupertino. Okay. Okay. Okay.
I will wrap it up there just because we do not have time, but thank you. Thanks for coming to the conference. Always a pleasure, my friend. Thanks, Ami.
Hi, my name is Richard Cho. I cover communications infrastructure here at J.P. Morgan. I would like to welcome Tom Mayerhoffer, CFO of DigitalBridge, and Severin White, Head of Investor Relations. Thank you for being here with us today. I just want to start off for those that might not be as familiar with DigitalBridge. Tom, can you go through a quick overview on DigitalBridge and your key priorities for this year?
Sure. We are an alternative investment manager focused on digital infrastructure. We raise pools, long-term closed-end pools of capital from institutional investors and invest in data centers, cell towers, fiber networks, and other adjacent areas of digital infrastructure.
We have about $37 billion of fee-earning capital under management, and with that, we manage a portfolio of about $100 billion of assets in the digital infrastructure ecosystem.
Great. I guess part of the appeal of DigitalBridge is that investors are allowed or enabled to play in different themes that are really on long-term secular positive trends. Can you kind of frame for us a little bit of how you view the TAM of DigitalBridge, in terms of its different verticals?
Sure. You know, we think that the opportunity ahead of us is, you know, many multiples of where we are today. There's probably about $500 billion a year in capital expenditures in the sectors in which we invest. You know, we're still a very small fraction of that overall, and we think there's huge opportunity for growth ahead. Yeah.
In the most recent quarter, you reported $1.2 billion of capital commitments, and you have over 70% commitment in your flagship fund. Can you talk a little bit about your fundraising goals for this year and the overall environment, mainly because I think there's been a lot of volatility in financial markets? People have seen different, I guess, news articles about private equity in general, but I feel like DigitalBridge is a little bit different than that because your sole focus on digital infrastructure has a much more, I guess, resilient, long-term focus.
Yeah, absolutely. You know, you just gave the commercial for us, I think. You know, we did, we raised $1.2 billion of capital in the first quarter. You know, we'd set out a target this year to increase our fee-earning equity under management to $40 billion.
We're at $37.2 billion at the end of the first quarter, and we feel really comfortable with that, that guide for the year. You know, our, our, the investment process, or for us, the sort of marketing sales process is a relatively long cycle, you know, because investors, when they commit with us, are locked up for seven to ten years. These investment decisions for them are not overnight decisions. You know, we may spend six months with an investor for them doing diligence, reviewing track records, you know, sort of negotiating. While there are some short-term, you know, sort of volatility from time to time, the overall fundraising cycle is a sort of a long one. You know, particularly in our portfolio, we feel very insulated from, from sort of the, the short-term gyrations in the market day to day. Yeah.
I think on your earnings call, you mentioned that 280 investors are doing due diligence on DigitalBridge, and to your point, this is a long process. Have you seen any of those kind of pull back and stop what they're doing, or have they continued to kind of do their due diligence? Because this is something they might, whether it's the new flagship fund or other funds that you may be launching over, or strategies you may be launching over the next few years, that they want to make sure they do their due diligence up ahead of time.
Yeah. By and large, we haven't seen much of an impact from, you know, in terms of investors' engagement with us, whether it's, you know, kind of continued due diligence, dialogue, negotiating documents, you know, all of that.
I think that, you know, investors have to make decisions that, you know, not investing is a choice as well. You know, large investors have allocation targets and they have to make decisions where to allocate their capital. Like I said, not investing is itself a choice. You know, while it may seem as though investors may just sit on their hands, they ultimately have return objectives, they have constituents, and so, you know, they're continuously allocating capital.
Got it. Something I wanted to go back to a little bit is your own experience, because Marc and DigitalBridge have been well known, I guess, for digital infrastructure for a while, and Marc's track record is great.
In kind of, I guess, growing DigitalBridge to become a tier one private equity firm, there is a lot of infrastructure that needs to be built in the company itself. You know, at your anniversary last year, you talked about the sales infrastructure. When you joined last year, in terms of the buildout and your experience, what were you focused on when you came to DigitalBridge and building out the company from your perspective?
Yeah, look, I do not think that I have tried to change anything fundamentally. I am just trying to help Marc and help the team grow smartly. You know, whether that is how we evaluate what new products we should launch, you know, we are very focused on our core strategy and, you know, we are looking at opportunities to grow adjacent to that.
You know, helping the team think through how, what products make sense to launch, what products might be too far afield. You mentioned sales. We have definitely been investing in the sales organization. I think that is, you know, a trend throughout the industry that, as firms look to approach different pools of capital, you know, whether it is the private wealth channels or, you know, we have seen a little bit of a migration from investors that have historically been real estate investors looking to kind of, you know, expand their remit to include digital infrastructure. You know, we have looked at whether we should hire some, you know, kind of sales folks that have specific experience in real estate, you know, with real estate investors, because sometimes that is a different group of investors at the same kind of client.
Those are definitely areas that we continue to invest in. Following up on that, I guess the original capital formation was based in the U.S. and with large institutions in the U.S., but increasingly, I guess the fundraising has been more global. How have you built out your global sales team, and what is left that needs to be done, if anything?
Yeah. You know, look, I think for us, there's such a significant opportunity that we can continue to grow organically the sales team. We have had fairly significant success raising capital overseas. I think, like most firms, the large checks from sovereign wealth funds are typically relationships at the top of the house.
Whether it is, you know, Marc or Head of Fundraising or some of the other senior executives, where we are supplementing that is, you know, kind of one level down, you know, the investors that put $25 million-$50 million in a fund and adding to the geographic coverage that we have in those markets.
I think one of your kind of newer products and funds has been towards credit, and part of that has been with private wealth also. Can you talk a little bit on how you are building out your credit strategies and how the private credit vertical or private wealth vertical is kind of playing into that?
Yeah. You know, private credit is not exceptionally new for us, although it is more recently that we have been talking about it.
You know, we've been in the private credit business for three to four years and are on our second vintage of funds. We've been a little bit quiet about it as we've allowed the team to sort of grow and execute. You know, we really feel like that's a great opportunity for us. It is something we've been a little bit more, you know, sort of talkative about. That's like a between a $1 billion-$2 billion business for us. It, you know, by all accounts, it can be and should be, you know, sort of a $5 billion-$10 billion business for us. It's not there yet. We've been very happy with the performance of the team so far.
You know, we're a bit more comfortable sort of talking about it publicly than maybe we were two years ago or three years ago when we wanted to, you know, give the team some time and opportunity to sort of do their thing. I would say, you know, we're relatively new to the private wealth fundraising channels. Based on our size, you know, we historically were capable of raising all the capital we needed from, you know, some of our traditional larger institutional LPs. You know, some of the larger peers have, you know, literally a couple hundred people dedicated towards raising money from private wealth and high net worth channels. We've just dipped our toe in the water and raised and hired one individual who's leading that effort.
You know, we're going to sort of grow into that sort of responsibly. You know, he's raising money, he's going to hire a couple people and, you know, prove the concept and sort of pay for itself as it goes. That's a huge channel for us. It might, you know, for us, you know, it can certainly be a multi-billion dollar opportunity, which at our size is meaningful.
Yeah. I think, I feel like with the private credit side, you started off kind of small, but it's grown larger. Can you talk a little bit how you expect that to evolve in that, how much investing is going from directly from the fund versus kind of, I guess, add-ons from the investors?
Yeah, sure. Yeah.
I mean, so add-ons, you know, largely being co-investments have been a significant source of opportunity for us, both in our flagship strategy as well as on the credit side. We have seen a number of opportunities to, you know, take down larger loans and put some of it in our fund. We have kind of a network of some of our large investors who are, you know, very eager to deploy co-investment capital. That can be particularly attractive because it does not really add much overhead, and it sort of is a relatively, you know, kind of strong fee generator.
Something that I have not talked about in a little bit, but I always like coming back to is that I think the way DigitalBridge always approached their investments is that not only do you make investments in different portfolio companies, but you have deep management teams both on, you know, running the companies, but also advising you. Can you talk a little bit about how you oversee where capital is being allocated for investments across your portfolio companies and how, I guess, the management team, which has broad experience in the different verticals, kind of works with the portfolio companies to kind of make sure that the capital is being allocated the right way?
Yeah. You know, I think we are a little unique, and I have been at a couple different firms.
One of the things that comes up often in our discussions internally is talking about the customers of our portfolio companies. I think our teams internally, both, you know, sort of the investment professionals as well as some of our operating partners, are, you know, really focused on who the customers are for our portfolio companies and making sure that the portfolio companies are delivering what the customers need. I do think that's a bit of a differentiator. We also are, you know, we're investors, but we're also typically building businesses. That's part of the reason that we end up with, you know, sometimes, outsized co-investment opportunities. You know, we're often not just doing a singular deal like you might see in a private equity fund where we buy a company and then five years later we sell it.
You know, we buy a company because we think there's a great opportunity there. You know, in the infrastructure space, we're then deploying meaningful additional amounts of capital, where we think there's value. Sometimes that results in additional capital raises for that company over a period of years.
I think, in one of your recent earnings decks, you kind of went through the amount of organic investment that is being done by your portfolio companies. Obviously, a large part is data centers, but you also have towers and fiber, and it's not just U.S. based, it's on a global basis. Can you talk a little bit about how much organic opportunities you have in your data center portfolio? And then we can kind of move to the other stuff.
I think to keep it a little more focused, can you talk a little bit about the data center opportunities that you're looking at near term? And then, we can move to the other verticals.
Yeah. You know, we've, data centers have been, you know, sort of what everyone has wanted to talk about in the last few years, and we've been a very active participant there. Sometimes we feel like the tower portion of our portfolio hasn't gotten enough credit. Although, you know, in the last, you know, sort of quarter or so, it seems like maybe there's been a bit more appreciation for a business like that that's, you know, fairly defensive and stable, yet also growing.
So, we, like I said, you know, on our deployment, we have these opportunities where we buy, particularly in the data center business, you know, we buy a data center, they have success, their customers want more capacity. We are helping them and funding the buildout of additional campuses. The tower portfolio tends to have kind of an ongoing build-to-suit component, but then also sporadic acquisition opportunities. Then we also, I think it's been relatively public that, you know, we're about to close on another data center platform, called Yonder, which we thought was an interesting opportunity to bring in, you know, kind of another independent kind of data center business that's going to be pursuing that. We see both new acquisition opportunities, but also, you know, meaningful opportunities to deploy capital at our existing portfolio companies.
With the data center investments, I think there was a lot of enthusiasm last year, but the start of this year that kind of tailed off. Have you seen any change from your portfolio companies or their customers in terms of like pulling back or wanting to do less builds, or has it kind of stayed pretty steady and they're thinking more longer term?
You know, like this is a long-term business and there's always going to be, you know, kind of short-term ebbs and flows and sentiment. You know, Severin and I were talking this morning and, you know, it's a matter of whether, you know, we don't try to figure out if the tailwinds are 22 miles an hour or 15 miles an hour or 25 miles an hour, but there continue to be strong tailwinds in this business.
You know, we're just really excited about what we see ahead.
Got it. I guess, you know, can you talk a little bit about your data center portfolio? You have Vantage, which I guess focuses on hyperscale, larger customers. Then you have DataBank, more Colo, and then Switch, which is kind of in between the two. You are going to be adding on Yonder. Yep. When investors come to you and look at this portfolio, are they wanting to kind of invest in particular portfolio companies or are they looking to you and realize that, you know what, you're going to be able to find the next growth investment and, on a global basis because there's a lot of opportunity out there.
I think there is a mix, you know, I mean, you kind of are close to this as well, so feel free to jump in, but there is a mix. You know, some investors are going to put money in our fund, in the commingled fund, and rely on us to make the allocation decisions. Then, you know, other investors will do that, but also like to supplement that with individual co-investments, whether it is because they have a geography that they prefer or, you know, they have a view on which sector. I think having assets in a number of different sectors of the data center industry is really helpful to us because we see the whole field and we know what all the customers are looking for, versus just, you know, sort of one slice of it. Yeah, makes sense.
In terms of, I guess you mentioned towers. Towers have been a very stable, strong business, but kind of got less noticed in the data center hype. What do you see in your tower portfolio, particularly with Vertical Bridge buying the Verizon towers and then GD Towers and European towers seem to be doing well? Do you see that growth as a long-term opportunity and are you seeing potential for, I guess, continued growth maybe in emerging markets at all?
Yeah, like, you know, we are trying not to talk too much about individual portfolio companies, but in general, you know, the tailwinds continue to be there. They are not maybe howling the way the data center tailwinds are, but they are steady and they are consistent. And, you know, there is continued densification, continued demand. And, you know, we are very happy with the portfolio of towers that we have. Got it.
Kind of the final piece, which I guess is tying together a little bit of the data centers and towers, is fiber. I think for a long time, fiber kind of got lost in the conversation, but it seems like, and not to talk about Zayo specifically, but it seems like fiber is making a resurgence and there are a lot of opportunities there. Are you seeing more opportunities between data centers and fiber?
Yeah, like, I mean, fiber is many different sectors depending on what it is. And so, you know, there's certainly been an uptick in demand across the space for data center business, and, you know, there probably has been a little bit of an evaluation reset in some areas that make it a little bit more attractive.
You know, fiber is not something we've talked about a lot recently, but it's something we're looking at more and more. Are you seeing more interest there or?
I think more activity. More. Yeah. I think on the, I think on the AI side in particular, it's been the vertical outside of data centers that we've seen the most engagement with customers, right? I think, you know, we're just talking about towers. We see, and we're talking about kind of rest of network becoming more important in the next couple of years as inference starts to play out in AI, right? A lot of the focus is on training on these huge, you know, very large scale data center deployments. But, you know, we're starting to talk about what happens a year or two years from now.
Those are the conversations we're having with customers that are going to drive the rest of the network, right? Ultimately, you know, AI is going to be on this or on, you know, on a computer at an enterprise. And so fiber is kind of the first place that we've really seen that spike in interest. We expect it in towers over the next couple of years. I think with that, inference wasn't a big discussion six, nine months ago. Yes.
It was more on the training side, but it seems like inference has quickly kind of come to a head. A lot of the Colo data center companies are talking about enterprises looking for inference kind of deployments.
Have these fiber discussions and kind of more edge network discussions kind of ramped up over the past few months, versus like a year ago?
Yeah, listen, I think that in particular around inference, the idea, if you talked earlier about some pause or, you know, changing profile of some of the data center deployments, I actually think some of that is tied to an appreciation by the largest customers, I think the hyperscalers, around what's the use case for this data center, not just today, but further down the road, right? You know, building a very large scale data center in the middle of nowhere, right? You know, if it's got very low power, maybe that makes sense.
but we've seen from our customers, a greater focus on, hey, I know I'm using this for training today, but in a year, two years from now, you know, can I, can this be an inference focused facility? We talked last quarter about this, the idea of inference looking a lot like Cloud 2.0, where you put a facility, it's got to be close to people, you know, to deal with the latency issues. That, that's a nuance that I think actually maybe is contributing to where do I want to, where do I want my data center footprint to be?
It's funny because I feel like these discussions need to happen now because it's going to take a few years to actually deploy. You can't just dig a ditch hundreds of miles out of nowhere.
Going back to DigitalBridge specifically, something you do not get as much credit as you probably should is on the carry of the business. You have had realizations and some good, I guess, outcomes, but it has been more sporadic. How should investors feel or think about your approach to kind of carry over the next few years as, you know, your flagship funds mature, you have more VM kind of grow and over time, how should we think about it?
Look, I think, you know, our priority for this year is, you know, sort of nailing our FRE guidance and target, and kind of demonstrating a track record of doing what we say we are going to do and executing.
You know, once we are, you know, once we've done that, you know, I think what you'll see the next step is, you know, I would put principal investments on our balance sheet in the same bucket as carry. You know, we have a relatively significant, a couple of relatively significant principal investments on our balance sheet, and we will, you know, sort of, if you think about end of this year, next year, our fund, you know, our first fund is like seven years old, second fund's five years old. You would expect to start to see some realizations there, and, you know, we have to prove that we're going to generate carry. You know, we're all very confident in it. You know, our employees all highly value the carry they receive.
We need to prove to folks that we will become a consistent generator of carry. I think also along with that goes realization of balance sheet assets.
I think something that's interesting here is that you can have realizations without completely selling out because I feel like a lot of your portfolio companies that your funds are in need a lot of capital to grow and there's a lot of opportunity ahead of them. Should investors expect, I guess, some partial realizations, but for DigitalBridge to continue to be invested in these portfolios?
Yeah, I think we've had some of that on a few of our investments where we've taken out partial realizations of carry, or I'm sorry, partial distributions, but not had a full exit.
and that's partly because we think there's a lot more opportunity at those companies. We haven't necessarily sold the entire business.
Can you go through the, like, DataBank realization that you had recently and how that played out?
Yeah, DataBank over the course of Q3, Q4, Q2, and Q1 raised about $2 billion, largely primary capital, to support, you know, what we and the investors who invested see as a really interesting opportunity for DataBank over the next couple of years. We've owned DataBank in a couple of different iterations for quite a while. There were some investors who wanted to get some liquidity. A percentage, a small percentage of that capital was earmarked to secondary transactions to buy out some investors. We as a firm sold about 10% of our position in DataBank, and realized about $50 million.
So, that was just, you know, we still retain a significant component of our investment in DataBank, but we just felt like it was appropriate. It is, you know, it was a $500 million investment on the balance sheet for a firm our size. It just seemed prudent to take a little bit of liquidity.
I think something with that is that in your slide deck where you talk or you show your fund performance, your marks appear very conservative. I think there has been some feeling that the performance has not been as good as, or marked as well as what people are hearing about and seeing about. I feel like, and you talked a little bit about this on the call, that if realizations actually happen, they seem to be done at much higher multiples or valuations than you are booking.
For investors, can you talk about your process on how you're marking your investments in your funds and what you show on that fund performance slide versus what the actual value may be realized at? Because there seems to be a very big valuation gap there.
Yeah, I think everybody would hope, you know, that in general, you sell your assets at more than where you have them marked. Our valuation process is, I think, relatively robust. You know, we look at transaction comps in the market. We look at public company comps. We look at a DCF. You know, we sort of look at all of these things and triangulate on what we think is the right value. You know, valuing private companies is as much of an art as it is a science.
You know, we're thoughtful and careful and cautious about it. You know, we hope that we will achieve some level of a premium to those marks when we sell things.
Got it. After you close Fund 3, and I guess Marc talked about it, he seemed very excited about it. Your next two potential strategies, can you talk first about the data center income strategy and what you might hope to achieve there? Because it seems like there's a very large opportunity there. I know a lot of other, I guess, funds or firms need to kind of monetize this because they want to keep growing. What's the opportunity there?
Yeah, we think that's a very large opportunity set.
You know, what it really amounts to is trading out the sort of cost of capital from, you know, what right now is a development cost of capital for a lot of these data centers that are being developed, and, you know, putting them into a capital structure that makes more sense for a stabilized asset. You know, you think about like real estate. You know, you have a real estate developer that has a certain cost of capital. When a building's built, fully leased, you know, there's a different appropriate owner. We do not think that there's enough capital right now earmarked for that mature, stabilized phase of the life cycle.
And so, you know, that's a different investor profile than, you know, the investors that are going to look for, you know, a mid to high teens return to invest in building a data center. We think there's a missing gap in the market right now. We feel like we can fill that. Got it.
I think Mark talked about the TAM being like $120 billion or something. I forget the exact number, but what kind of, I guess, scale would you want to be of the total TAM? I just, I'll talk about it in terms of products. Yeah. You know, for us, it doesn't really make a lot of sense for our flagship large funds are sort of on the $8 billion size.
It doesn't really make sense for us to, to sort of do a product that's less than $1 billion. It just doesn't move the needle or add enough profitability for us. You know, I think anytime we, we do a new initiative, we're not going to do something that's less than $1 billion. Realistically, we're not going to be at that, you know, kind of $8 billion-$10 billion size for our mature business, like our flagship funds. At least out of the gate, we would hope to be, you know, kind of plus $1 billion, but, you know, kind of in that single digit billions. You know, to the extent we're successful, we, we wouldn't enter a business if we didn't think it could be, you know, ultimately a, you know, $5 billion-$10 billion kind of business.
The other strategy, I guess, that you mentioned on the call, and I think has a lot of opportunity, but people might not be sure on how you want to approach it, is the energy side. There was a lot of, I guess, enthusiasm early in the year and end of last year. I think the way DigitalBridge wants to approach it is not on the generation side per se, but more on transmission and then kind of individual grids and whatnot. How would DigitalBridge kind of, I guess, focus on the energy strategy? Yeah, Sever may jump in because he's actually spending a lot of time on it. He wears many hats at DigitalBridge Investor Relations, and he's really involved in our energy strategy.
You know, look, we see a huge opportunity around particularly the data center business that is significantly power constrained right now. You know, getting behind the meter and either having kind of permanent energy generation opportunities co-located with the data center or in some cases, mobile temporary, you know, if you have a permit and you have everything you need to do to build a data center, but you cannot get power for three years, if we can bring it to you, even if it is only temporary for three years, there is a huge value to you at that. Or if we can, you know, kind of get energy generation up and running, there is a huge value to you in that.
That is where we think our expertise in the data center side, you know, combined with some of the power generation can be very valuable both on its own and within our ecosystem. You are spending a lot of time on this. Yeah, listen, I think one of the things that is true, and you talked about this in terms of customers, us thinking through our portfolio companies to the end customers, historically power was not a friction point in the data center ecosystem. It has become one. We are naturally thinking about, okay, if my big customers need this as part of the solution, how can I be active in doing that? That is really the stimulant for us to kind of be in that space from a TAM and a scale standpoint.
We think about it as maybe, you know, if the data center opportunity is 100, the digital energy opportunity is kind of 50 if you think about the amount of, you know, power that has to be adjacent to it. And, you know, I think we're being very prudent and thoughtful about how we enter it. You'd expect us probably to do it with or in partnership with people that have a lot of experience in the power sector. We think it's a huge opportunity and obviously one that probably will drive growth in 2026 and beyond in the same way the data center income, you know, is a focus point. Following up on those two, without being too specific, but how should investors look at these strategies kind of, I guess, coming to fruition?
Are we talking end of this year, into next year, just any timeframe you can give, on either one or both? Yeah, I think that, you know, as Severin said, I think, you know, in terms of real results, those are going to be 2026 and 2027. You know, we would hope over the second half of this year that we're able to report, you know, kind of substantive progress on those business initiatives. In terms of the financial kind of flow through, it's much more likely a 2026, 2027. You know, for us, the first half of this year is laser focused on closing out our flagship fundraise. The sort of final close of that is at the end of July and hitting our FRE, you know, kind of guide.
The second half of the year is focused on making sure these new initiatives get off the ground. We are obviously already doing work on them, but, you know, it becomes a priority for us. I am really focused on, you know, keeping us laser focused on doing a couple of things really well at a time. The first half of the year is close out our flagship fund, make sure we are hitting our FRE guidance. People are separately working on these new initiatives, but second half of the year, those become front and center firm wide, you know, sort of, priorities. Great. I will leave it at that. Thank you. Okay. Thanks. Awesome. Thanks.