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The AI trade now runs on borrowed money, and the lenders are repricing it

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Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#21

Post by sndgndgndgndy »

fsckboy wrote: post #7

you won't get debt if you don't have assets that can be repossessed, so having debt means these AI companies have assets: that's a strong thing, not a weak thing. interest rates are what they are, and they go up and down for reasons exogenous to your industry; debt regardless of interest is always "cheaper" than equity, and the shareholders expect to make their money from equity, paying interest on debt as a type of…

GPUs have a five year lifespan before they become obsolete and start experiencing reliability issues. We're already 1-2 years into that five year lifespan.

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#22

Post by jamesfinlayson »

gymbeaux wrote: post #19
fsckboy wrote: post #7

you won't get debt if you don't have assets that can be repossessed, so having debt means these AI companies have assets: that's a strong thing, not a weak thing. interest rates are what they are, and they go up and down for reasons exogenous to your industry; debt regardless of interest is always "cheaper" than equity, and the shareholders expect to make their money from equity, paying interest on debt as a type of…

I would imagine Anthropic et al. are largely leasing land/buildings, so as the other commenter said… must be the server racks that are acting as collateral (if anything). Generally enterprise hardware depreciates very harshly. I’m used to paying $10 for Intel Xeons that once retailed for over $5,000. I expect to pick up some NVIDIA Blackwell 6000s for $100 each someday.

Yep, a friend recently told me that he remembers working somewhere that gave away old empty server racks - they were unnecessary, and expensive to store, so why keep them?

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#24

Post by aurareturn »

defactor wrote: post #15

Warren Buffet way Revolutionary technology + massive adoption ≠ good investment Investors have poured money into a bottomless pit, attracted by the growth and glamour of the industry. The airline industry since its birth has had a collective net loss, in aggregate, despite moving hundreds of millions of people. Commodity Product, no switching costs. Infinite competition

It isn't a commodity product in my opinion. Far from it. I think it will ultimately be a monopoly or duopoly for SOTA. The mid to low end is commodity, yes. But SOTA models are not commodities.

The number of competitors for SOTA drops by a few every year. The winners make more money, get more revenue, buy more compute, train better model with compute, buy best talent, and the cycle goes.

I think it's easier to fall behind and never catch back up than people think. One disastrous training run can leave a lab months to a year behind. For example, Meta's disastrous LLAMA 4 models. Meta is lucky to have their ads business as a funding source. However, Anthropic's revenue is growing so fast, that ability to use ads as a funding source to stay in the race may not last much longer for Meta.

To me, SOTA LLM training is very much like new chip fab nodes. One disastrous node can put you behind for many years or forever. The cost to build the next chip node doubles every every 4 years (Rock's law). The cost to train the next SOTA model likely has some similar power law which means over time, it's too costly for losers to keep up. The only reason TSMC isn't a defacto monopoly for advanced chip nodes is strictly due to geopolitics.

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#25

Post by onion2k »

defactor wrote: post #15

Warren Buffet way Revolutionary technology + massive adoption ≠ good investment Investors have poured money into a bottomless pit, attracted by the growth and glamour of the industry. The airline industry since its birth has had a collective net loss, in aggregate, despite moving hundreds of millions of people. Commodity Product, no switching costs. Infinite competition

The airline industry since its birth has had a collective net loss, in aggregate, despite moving hundreds of millions of people.

The industrialisation essentially socializes the cost across a lot more people though, so even though it doesn't make a profit it does mean people can have air travel without it costing millions per flight for the few people who can afford it. Essentially the economies of scale from having lots of flights isn't enough to make it profitable but they are enough to make it affordable.

There's no spare money to extract from the airline industry but it's still very useful. The same could be true for AI in the long term.

Sometimes the goal of an industry is to exist rather than to make a profit, because the benefit to society is more important than profit. People don't like that though so they do a bit of creative accounting or head-in-the-sand denial around it.

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#26

Post by orwin »

aurareturn wrote: post #24
defactor wrote: post #15

Warren Buffet way Revolutionary technology + massive adoption ≠ good investment Investors have poured money into a bottomless pit, attracted by the growth and glamour of the industry. The airline industry since its birth has had a collective net loss, in aggregate, despite moving hundreds of millions of people. Commodity Product, no switching costs. Infinite competition

It isn't a commodity product in my opinion. Far from it. I think it will ultimately be a monopoly or duopoly for SOTA. The mid to low end is commodity, yes. But SOTA models are not commodities. The number of competitors for SOTA drops by a few every year. The winners make more money, get more revenue, buy more compute, train better model with compute, buy best talent, and the cycle goes. I think it's easier to fall b…

But who needs SOTA models, really? It was necessary 10 months ago, but now?

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#27

Post by JumpCrisscross »

“None of this yet resembles a credit cycle turning, and the signals that would show one are quiet… What the data describes is closer to the opposite of a contraction: a credit expansion absorbing record supply and charging progressively more for it. The pricing runs in a ladder.

…

Where the ladder breaks is at the bottom. CCC and Lower Option Adjusted Spread signal rose twenty-two points over thirty days to 88 and sits at Critical, markedly higher than the Investment Grade or High Yield spread signal levels, and AI paper does not price at CCC. Private Credit Stress sits at 96, up thirty-one points, consistent with reporting data center financing has moved toward private credit and off-balance-sheet structures where the ultimate holder is harder to identify. What separates an expansion from a contraction is not the level of spreads but whether new issuance keeps clearing. An expansion growing more expensive still places its paper; a contraction is when deals stop pricing at any spread. The market is still clearing. It is clearing at a price that has moved in one direction.“

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#28

Post by JumpCrisscross »

mrloopex wrote: post #5
klodolph wrote: post #4

A while ago I was thinking, “Gee, AI is so complicated, how can I keep up with the landscape?” After reading these articles go by so often, it feels like what I actually can’t keep up with is the bond market. To paraphrase Trotsky, you may not be interested in the bond market, but the bond market is interested in you. I want to be able to read the signals at the bottom of this article, and divine some kind of predict…

Don’t forget there is a constant pressure for everyone to have an opinion on how this is going to end while hoping it ends tomorrow so they can be vindicated. The dotcom bust took a decade to grow and collapse. I think it is too early to make predictions with AI. I mean the sentiment here is either it will dry up the world and kill us all or transcend humanity, there’s no gray area. I don’t want to fall into the emot…

> there is a constant pressure for everyone to have an opinion on how this is going to end while hoping it ends tomorrow so they can be vindicated

In what bubble does this pressure exist?

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#29

Post by aurareturn »

orwin wrote: post #26
aurareturn wrote: post #24

Earlier quoted context omitted.

It isn't a commodity product in my opinion. Far from it. I think it will ultimately be a monopoly or duopoly for SOTA. The mid to low end is commodity, yes. But SOTA models are not commodities. The number of competitors for SOTA drops by a few every year. The winners make more money, get more revenue, buy more compute, train better model with compute, buy best talent, and the cycle goes. I think it's easier to fall b…

But who needs SOTA models, really? It was necessary 10 months ago, but now?

All things equal, let's say your SaaS startup uses GPT 5.0 (release 10 months ago) and my business uses Fable 5. We have the same business goals, same talent level, same strategies. I think the chance of my business winning against yours is higher.

I can't prove it. It's just my opinion.

Re: The AI trade now runs on borrowed money, and the lenders are repricing it

#30

Post by kryptiskt »

robomartin wrote: post #8

I remember when Amazon was going to go broke every year for over a decade. Until they didn't.

That wasn't what it seemed like at the time. Amazon didn't post profits, sure, but they sure as hell weren't a giant money suck either, they didn't need billions in financing to run their business. There were a lot of Amazon bears, but they were concerned about the high valuation, not about them going broke (since even the most pessimistic bear can read a cashflow statement).
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