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AI Companies Are Trying to Hide a Staggering Amount of Debt

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Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#101

Post by postalcoder »

lumost wrote: post #64
wongarsu wrote: post #53

Do they? Is a company with $200 billion annual revenue and earnings (EBITDA) of $100 billion having $420 billion of off-balance-sheet debt really staggering? In many other industries that would be a perfectly normal amount of debt to have. It's only unusual because we are used to tech companies having so much cash on hand they don't know where to put it

These companies have valuations reflecting a debt light business. At a minimum, 420 billion in debt is enough to change the stock price by 10-20%. If the company plans to add another 400 billion in debt you need to give it the side eye. If 50 billion in revenue is from other companies debt spending… then You have a problem.

> These companies have valuations reflecting a debt light business.

Sorry, but this doesn’t make sense. The valuations of these companies reflect their growth.

In finance there’s nothing inherently virtuous about a “debt-light business”. It’s all an allocation decision based on how you expect to grow relative the cost of that growth.

Try and reframe it: are cash-heavy businesses given a premium?

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#102

Post by mint5 »

senshan wrote: post #93
skohan wrote: post #62

Earlier quoted context omitted.

Couldn't it be a problem given the concentration of the S&P in these companies? At this point these companies make up a huge portion of 401k's for a huge chunk of Americans. How would it affect retirees if they dropped 40-50%, likely taking the market with them?

For those who stick to a meaningful asset allocation (e.g. 60/40, 80/20, etc), this does not pose significant problem -- they would not be buying much stock in the last 3 years. Instead, they would be buying mostly fixed-income. Probably mostly in 401k/IRA accounts.

But if their debt goes bad, isn’t that debt the very bonds that make up the other part of those asset allocations?

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#104

Post by cowl »

tedggh wrote: post #52
markus_zhang wrote: post #29

Earlier quoted context omitted.

The thing is they actually pushed the price tags of memory and disks high so we wouldn’t be able to afford it. Unless ofc you rent from them.

If hyperscalers flop, and there’s a good chance they will, memory and disk prices will crater. They are historically the most volatile asset in tech. If Samsung, Micron et al can’t sell to hyperscalers they will switch back to consumer, because they can’t just turn off a memory fab without losing billions.

only that is not so. disk prices maybe, the memory will not be available to consumers because it's a tech that makes sense only for datacenters full of GPUs and massive power/cooling. by now all fabs have converted to it, there might be a lot of HBM capacity freed but no consumer devices that can use it. retooling all fabs to produce consumer level memory will take a lot of time if they even do it at all instead of just pushing for consumers to rent datacenter capacity directly.

all three major remaining players in the mem sector have already tried in the past to collude for memory price fixing.

this is the first time I'm rooting for chinese chip tech to reach more or less parity.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#107

Post by jerf »

chasd00 wrote: post #23

Are they really "trying to hide" this debt? I think it's pretty common knowledge that a lot of these companies are using debt/bonds for funding. The debt not showing up where the author wants is a reporting formality not an attempt to hide it.

It's an interesting counter to the efficient market hypothesis. "Everybody" knows about this debt. It's in the most public news outlets there are, and the word has been getting around. It's about as secret as Taylor Swift's concert schedules. Any serious investor knows about this debt.

And yet... the companies do this because it works. If they held this debt on balance sheet, the sensible assumption is that their stock values would take a rather substantial hit, and they could face other sorts of scrutiny. It works like pull-in sales works. It works like channel stuffing works. It works even when everybody knows that's what's happening. It works even when everybody knows that everybody knows that's what's happening.

There's something broken here. In an era where AIs move millions upon millions of dollars around because of some blip of a headline somewhere and every AI improvement of any kind is immediately scrutinized for its ability to be used by the financial system, it is completely incredible that the system doesn't know and react to these things. I'm not sure what's broken. My first best guess would be the increasingly mindless investment via index funds in pensions and the slow-but-ever-increasing ability of financial engineering to abuse that mindless investment, but I call that a "guess" for a reason. Possibly there's still a lot of really stupid AIs hooked up to the stock market that just look at the most basic of numbers and are easily fooled by this? But who is running such a precise combination of "huge" and "stupid" on the market? I dunno. Something's weird here.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#108

Post by jddj »

Xalutiono wrote: post #28
elmer2 wrote: post #2

It won't pay off if LLMs efficiency gets good enough to make those data centers obsolete. It's a huge gamble.

We haven't even started with a lot of things were we need a lot more compute: Your real personal agent which knows you and helps you like "good morning elmer2, your calendar invite for dinner is today, you will need to leave at 18:18 if you want to use your normal public transport route per train. I put an alarm in your phone for you" Agents to agents Agentic teams. Finetuned models for everything like Java/spanish c…

This is going to sound a bit facetious, but I'm almost certain the Gmail / maps integration on my Samsung galaxy in 2014 did that.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#109

Post by 1970-01-01 »

The crux of the problem is models are not evolving anymore, they're iterating. Cheaper, faster, better. We're only seeing better, and that's because there is fierce competition with massive debt behind it. The "cheaper and faster" part is all taking place with local models. All of this adds up to a big red flag for a bubble.

Re: AI Companies Are Trying to Hide a Staggering Amount of Debt

#110

Post by postalcoder »

Noaidi wrote: post #61
wongarsu wrote: post #53

Do they? Is a company with $200 billion annual revenue and earnings (EBITDA) of $100 billion having $420 billion of off-balance-sheet debt really staggering? In many other industries that would be a perfectly normal amount of debt to have. It's only unusual because we are used to tech companies having so much cash on hand they don't know where to put it

It is not just that they have the debt, it. is they are trying to hide the debt. Why would a legitimate company try to hide their debt?

There are many reasons to use subsidiaries for things like this, like to invite outside investment, ringfence risk, cede operational risk, and many more.

This is all like CFO 101 type stuff, and not nefarious. I find it amusing that people assume the worst for things they understand little about, rather than trying to learn.

Maybe the best way I can explain it to the programming crowd is this: imagine how ridiculous it would sound if outsiders were saying that Google was on the verge of collapse because its codebase has billions of lines of code.

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