Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

AI Companies Are Trying to Hide a Staggering Amount of Debt

futurism.com

Post reply on HN
Print view View original

171–180 of 407 posts

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

#171

Post by rwmj »

MattGrommes wrote: post #166
tyleo wrote: post #73

Earlier quoted context omitted.

It’s an interesting thought. The growth is so extreme that if the S&P 500 fell 50% today it would reach levels last seen in 2022. Given that the timespan is so short, I’m honestly not sure it would be as bad for 401ks as people expect unless all of your investment was concentrated in the last 4 years. I suppose it’s worse if your calculation is, “I’ll retire when my 401k hits $X absolute value,” but I think most peop…

One of the big issues with this is sequence of returns risk. If you retire and rely on your portfolio but the market dives for a year or two right after you leave the workforce, your total portfolio value is screwed because you were selling at a low point.

Which is why you keep 3-5 years of spending money in cash (or a bond ladder if you want to be fancy).

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

#172

Post by TacticalCoder »

DenisM wrote: post #113
__natty__ wrote: post #87

Is the bubble bursting? Amount of the news about bad shape of companies highly invested in AI in the past days are quiet alarming or is it just bias?

This media frenzy can go on forever tho. A Bear Sterns moment would be more solid. Oracle might ge the first to collapse if things go south, so we might be fine until then(?).

> Oracle might ge the first to collapse if things go south ...

Truth be told ORCL already kinda went south: they're down 65%, at $120, compared to their all-time high.

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

#173

Post by mschuster91 »

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…

> 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.

Three things:

1) at least SpaceX is already in pension funds "thanks" to NASDAQ and MSCI relaxing their rules. Everyone who invests in NASDAQ or in MSCI World has SpaceX exposure, and assuming the bonanza lasts for 11 more months, so will everyone who invests into S&P 500. In addition NVIDIA, Google, Microsoft, Oracle and Amazon all have been in pretty much every investor's / pension fund depots. No matter what, everyone is going to get fucked when the party crashes, and it will make 2007 look harmless by comparison.

2) The debt of the AI companies is bad enough, but there's all the downstream credit as well, chiefly construction companies and public utilities that are undertaking absurd amounts of buildout. When the party crashes and the demand stops, there will be a lot of construction companies and possibly even a few large utility companies that will be unable to service their debt (because no datacenter means no income) or have to hike rates even more than they already are.

3) All this debt and speculation unwinding will cause an economic downturn. Most of Europe already is in or near recession territory, and the US would be in a recession if it weren't for the wash trading and circular investments artificially propping up the GDP. But unfortunately, with the exception of infamously austere Germany, everyone else has already fired all the guns during 2007ff and Covid, and all the ZIRP money never got slowly deflated out of the market, which means this time there will be no government help possible, it will be a hard crash. No way out of that one.

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

#174

Post by gsky »

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

People used to complain that these big companies were sitting on money and not investing.

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

#175

Post by linkregister »

turtlesdown11 wrote: post #150
ch4s3 wrote: post #91

Earlier quoted context omitted.

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...

The essence of the Enron scandal was the perpetration of accounting fraud. It took down Arthur Andersen. We went from the "Big 5" accounting firms to the "Big 4" because of this. They very much violated GAAP.

https://en.wikipedia.org/wiki/Enron_scandal

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

#176

Post by strictnein »

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

To be fair to the author, they have no background in finance and work at a site that knows that anti-AI stories get a ton of traffic. The entire site is now just doom-and-gloom clickbait headline after clickbait headline.

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

#177

Post by theredleft »

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

brother read those numbers out loud

If I make $200k I do not have $400k off-balance gambling debt

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

#178

Post by [deleted] »

drob518 wrote: post #169
dmitriy_ko wrote: post #59

Earlier quoted context omitted.

Take-or-pay contracts appear as "contractual commitments" in 10-K. They are not hidden. That's the way they are reported in all industries where take-or-pay contracts exist. There's nothing nefarious about it.

Yes, the contractual obligation shows up, but not the debt the subsidiaries took on. You have to follow the entity structure and look at their books for that piece. And it’ll show up as a different accounting category, “services rendered,” for instance, not as debt repayments.

[deleted]

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

#179

Post by duzer65657 »

rwmj wrote: post #171
MattGrommes wrote: post #166

Earlier quoted context omitted.

One of the big issues with this is sequence of returns risk. If you retire and rely on your portfolio but the market dives for a year or two right after you leave the workforce, your total portfolio value is screwed because you were selling at a low point.

Which is why you keep 3-5 years of spending money in cash (or a bond ladder if you want to be fancy).

most don't even have 3-5 years "spending money" (whatever that is) in total savings; if you're keeping that in cash you're getting 2-3% annually while the market has doubled.

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

#180

Post by duzer65657 »

intrasight wrote: post #163
Marsymars wrote: post #156

Earlier quoted context omitted.

> What do you think the cost would be for protective puts per $1M of equity exposure of a portfolio on a monthly basis? "Bubble Insurance" if you will. I expect that would not be a cost-effective way of attaining the risk profile you'd be looking for. I expect there won't be a more cost-effective way of managing your portfolio risk than by simply adjusting your split of broadly-diversified equities vs bonds.

My homeowners insurance isn't "cost-effective" either but I still do it. I think the reason that investors don't is because they are greedy or irrational or both. That was the message that I got from a financial podcast I listened to a couple weeks ago anyway.

investors are irrational but actually tend to go the other way - too risk adverse. I'm not sure what a "greedy" investor is, TBH.
Post reply on HN