AI Companies Are Trying to Hide a Staggering Amount of Debt • Hacker News Board

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

#141

Post by rockskon » Thu, Jul 23, 2026, 4:12 PM UTC

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…

It is unlikely that a 50% drop in NVidia wouldn't be paired with a significant drop in the valuation of every other company heavily invested in AI.

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

#142

Post by throwaway667555 » Thu, Jul 23, 2026, 4:16 PM UTC

postalcoder wrote: post #101

lumost wrote: post #64

Earlier quoted context omitted.

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?

The pertinent comparison in valuations is debt vs equity, not debt vs cash as you noted.

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

#143

Post by krashidov » Thu, Jul 23, 2026, 4:16 PM UTC

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…

"This tree only makes up 0.0001% of the forest. If it is lit on fire, the forest will be fine"

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

#144

Post by hualapais » Thu, Jul 23, 2026, 4:17 PM UTC

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?

I suggest looking into “EQL”, or better yet, just replicating its index by taking a position in the 11 XL* sector funds from SPDR, allocating equal weighting to each. One will end up with one’s equities equal weighted by sector and with plenty of large cap exposure, as opposed to the pronounced mid-cap tilt found in whole market equal-weight strategies.

Personally, I drop the financial sector entirely (Thomistic prohibitions on usury) which leaves an even 10 funds which is easy to allocate mentally and in practice. For example, assuming a 60/40 allocation where one is holding the lion’s share in equities and the remainder in bonds (I substitute with a combination of gold, crypto, cash, and Swiss Franc here), one would allocate as follows:

XLC 6% XLY 6% XLP 6% XLE 6% XLV 6% XLI 6% XLB 6% XLK 6% XLU 6% XLRE 6%

(Note that XLF is consciously not taken as a position here, decide if it’s right for you. The Mortgate REITs which would make XLRE problematic are in XLF per the sector selection rules)

The remaining 40% is bonded debt if you are fine with usury, or some sort of asset negatively or neutrally correlated to equities.

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

#145

Post by postalcoder » Thu, Jul 23, 2026, 4:22 PM UTC

throwaway667555 wrote: post #142

postalcoder wrote: post #101

Earlier quoted context omitted.

> 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?

The pertinent comparison in valuations is debt vs equity, not debt vs cash as you noted.

My point was more of an exercise to point out that finance is about mutating resources. A lot of cash can be a good thing or a bad thing. Same for debt. There’s nothing inherently bad about levels.

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

#146

Post by Imustaskforhelp » Thu, Jul 23, 2026, 4:23 PM UTC

postalcoder wrote: post #110

Noaidi wrote: post #61

Earlier quoted context omitted.

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…

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

Agreed, there are many valid reasons to have subsidiaries of course.

The issue is rather with the fact that we are having the assumption that the threat is outside rather than inside and so systems with mechanisms to be less transparent are far more prone to this risk.

It has been academically shown that most corporate/ white paper scams aren't done from outside but rather from inside the company itself through genuine structures and incentives which go wild. (Something shockingly visible in AI space), Enron's example also comes to my mind.

The best way I can explain it to the programming crowd is this: Imagine how ridiculous it would sound if you are ranked with how many lines of code you ship and how much token you would spend and so we end up with tokenmaxxing and hearing stories about people literally burning tokens in innovative ways because they want to get on top of a leaderboard. Oh wait, it is already happening or has happened.

Generally speaking, It is preferable to be transparent with debt and other things rather than not especially so for long term because sooner rather than later you might get caught. Obviously if there is some stuff which prefers from ringfencing risk then sure.

Also as I spoke of Enron, but the exact structure was used by Enron as well as @fzeroracer discusses in their comment[0] so it might be a genuine question.

[0]: https://news.ycombinator.com/item?id=49023596

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

#147

Post by MikeNotThePope » Thu, Jul 23, 2026, 4:23 PM UTC

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?

I don’t think concentration risk is itself overly concerning. The nature of a market cap weighted index means it will always be heavy on whatever is currently trending. You’ll certainly be hurting if your plan is to retire at the top of the market with just enough, as the inevitable downturn will hammer your portfolio down into not enough. So invest until you have enough to handle volatility or a lost decade with a dip and slow recovery.

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

#148

Post by daveguy » Thu, Jul 23, 2026, 4:26 PM UTC

nolok wrote: post #36

daveguy wrote: post #20

Earlier quoted context omitted.

You do realize "subsidizing" means charging less for something than it costs to provide, right? So they'll lose a dollar on every sale, but they'll make up for it in volume? E2E is usually where the profit comes from. If they're subsidizing getting regular users on board (pro/plus/max), and they're subsidizing to get businesses on board (massive deploys), where can the profit possibly come from without a pricing rug…

I do, my point was answering to the "if it comes so cheap that" they would stop losing money of that, they would still need to subsidize for acquisition or some big clients or for rush times. It's the all-you-can-eat-buffet strategy. I'm not saying I see them going that way or that I would, but at least THAT would possibly work.

Thank you for the clarification. I figured I was missing something in your meaning. Although "if it comes so cheap that..." means it will probably come cheap for other providers, and the margins wouldn't be there in the end because a price increase to take advantage of those big clients / rush times might lose the clients. I think we agree that their chances of becoming profitable don't look great.

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

#149

Post by turtlesdown11 » Thu, Jul 23, 2026, 4:28 PM UTC

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

> they don't know where to put it

ohh, their accountants just dont know where debt goes on the balance sheet. thanks for clearing it up

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

#150

Post by turtlesdown11 » Thu, Jul 23, 2026, 4:33 PM UTC

ch4s3 wrote: post #91

Noaidi wrote: post #80

Earlier quoted context omitted.

Rope a doped with cope. Maybe you should buy some $ORCL? https://asia.nikkei.com/business/technology/five-us-tech-gia... "Companies disclose such future debt not in their balance sheets, but in annotations to their quarterly financial statements. This is a legitimate practice under accounting rules, but may make it difficult for retail investors to recognize risks." "Today's AI industry is partly supported by demand…

Retail investors shouldn’t be investing in individual stocks outside of industries they understand well. Following GAAP is the definition of not hiding the obligations.

Enron also didn't violate GAAP so by your definition, no financial wrongdoings...