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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

#121

Post by dofm »

Xalutiono wrote: post #32
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.

Yeah I think it went through the press on mass eh? And even if you look at the debt, even companies like meta make 200 billion revenue in 2025 alone. Isn't it good that these companies with these massive massive deep pockets invest?

One of Meta's SPVs building a data centre for them, Meta own only 20% of it; 80% is owned by other investors. That's the issue here; the market thinks that only these handful of money-go-round FAANGs/Mag7 companies, are exposed but analysis shows that SPVs are spreading really significant risk to many more investors.

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

#122

Post by tedggh »

cowl wrote: post #104
tedggh wrote: post #52

Earlier quoted context omitted.

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 j…

That switch will actually take a few months, technically speaking. What may delay it is manufacturers strategizing to avoid oversupply and trying to minimize their loses from all the investment in tooling they cannot longer repurpose. It will be a logistical and financial nightmare for them too.

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

#123

Post by anthonypasq »

skohan wrote: post #95
swarnie wrote: post #77

Earlier quoted context omitted.

I'm not familiar with 401k rules but presumably they get a choice of markets and products? If one is over concentrated its easily avoided.

The problem some have pointed out is that these companies are such a huge portion of the market right now. The sound advice for the past decades has been, just invest in a low-cost ETF tracking the S&P instead of picking stocks to minimize risk and invest in the market broadly. So a huge number of people have done that, believing they're diversified, while tech makes up 40% of the index. Yes you could sell your S&P a…

no one that needs to rely on their investments for their actual retirement still has them in equities. theres a reason target date funds automatically adjust asset allocation as it nears its target date. you should be in majority bonds and cds well before your actual retirement date.

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

#124

Post by dofm »

timacles wrote: post #76
Xalutiono wrote: post #58

Earlier quoted context omitted.

Thats a Elon Musk / Space-X issue thought not a Google and co issue. How much real impact is this really though?

If it crashes the global economy will crash and they will have to print money for a bail out which means another 30% increase to the price of everything But minimal real impact

Is it your contention, then, that the 2008 crash had minimal real world impacts?

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

#125

Post by kipchak »

riffraff wrote: post #90
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?

NVidia makes up 7.5% of the SP500. If it lost 50%, it would be a 3% loss for the index. The concentration is bad, but it would not cause a drop of 50% retirement funds by itself. If you take an all world index, it's even less. Still, if NVidia lost 50% of their market share, we would probably see a big collapse of the stock market. EDIT: to note, the top ten companies in SP500 make up an unprecedented concentration b…

Regarding unprecedented concentration, wasn't the nifty fifty era comparable for the top 10, about 40%?

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

#126

Post by eagerpace »

dofm wrote: post #88
eagerpace wrote: post #57

Earlier quoted context omitted.

It has nothing to do with the administration. These companies did the same thing with the last, and they will do the same thing with the next.

You could say this but the previous administration was not talking about taking a 10% share in both companies; this one is (thanks to Sam Altman's very personal lobbying of the president)

It manifests in many different forms.

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

#127

Post by dofm »

Luker88 wrote: post #43
Xalutiono wrote: post #25

And? Its not my debt. If they continue investing in compute, memory, memory bandwidth, network infrastructure, etc. it makes a relevant contribution of progress in all of these fields which I will leverage. A small form factor PC with 100gb fast memory and being able to run something like sonnet or opus level LLM would be massive. I have so many things i want to do and still sitting it out due to cost.

> And? Its not my debt. Your view seems very myopic. AFAIK they have heavily relaxed the rules for IPO. Pension funds are practically forced to buy from the top-100 companies, and these companies risk crashing much more than the others. SpaceX value is already lower than at launch. If this costs are externalized to the common public, this will be your debt. All these companies are too big to fail, in an environment w…

Luckily so far only one index changed its rules to cover SpaceX and what the AI IPOs would need.

I don't know how specifically significant SpaceX being lower than at launch is, because actually most IPOs underperform the market and their own targets for the first three to five years. What is happening to it is not that unusual; its overvaluation is.

I do think there is a major risk here, and ordinary investors and pension holders will be hurt.

I am not sure any individual AI company is too big to fail, though probably one of the big two will be rescued, most likely Anthropic. I think OpenAI will fail, and it'll be stripped for parts. As will Oracle, who are overexposed to it.

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

#128

Post by noelsusman »

skohan wrote: post #62
senshan wrote: post #56

As long as this debt does not make it into life insurance and pension funds, we are fine. The trouble is that private credit is taking control of some life insurance companies and off-loads this debt to these. When these fail, it will become everyone's problem. > Risks to financial stability may also stem from entities with particularly high exposure to private credit markets, such as insurers influenced by private e…

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?

Retirees relying on short term equity returns to cover expenses only have themselves to blame.

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

#129

Post by luckydata »

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?

they aren't trying to hide anything, those are accounting rules that are applied to the letter. I'm feeling like I'm taking crazy pills whenever I see this stuff about AI, your hate boner for a specific technology shouldn't trigger you saying things that are provably untrue.

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

#130

Post by WarmWash »

sdellis wrote: post #115
postalcoder wrote: post #110

Earlier quoted context omitted.

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…

"There are many reasons to use subsidiaries for things like this, like to invite outside investment, ringfence risk, cede operational risk,..." In other words, they are intentionally deceiving investors and hiding the risk from them. That does not sound like CFO 101, it sounds like fraud. But if grift is your business, I guess those are as valid reasons as any.

She's a witch!
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