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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

#131

Post by refurb »

mapping365 wrote: post #82
refurb wrote: post #70

Earlier quoted context omitted.

I would question the idea that highly industry consolidated debt is competing with risk free debt issued by the US government. Those are two very different products. And while the quarter by quarter growth may seem astonishing it very different saying “debt levels today are alarming” versus “if this trend continues debt levels will be alarming”

So the disclosed balance sheet debt is 1.35 trillion and then the off-balance sheet debt is 1.65 trillion for a total of 3 trillion in AI debt for the 5 tech giants so far. It's multiplying every quarter and they've set investors expectations to be that this is never ending basically. But the tech giants aren't the only people spending themselves into massive debt, think of the CoreWeaves and the Nebius and the hundr…

While the debt numbers might look large, don't forget how much revenue is coming into these companies as well.

OpenAI gross revenue was $4B in 2024, $13B in 2025 and estimated to hit $26B in 2026. Revenue is doubling or more.

Same with Anthropic. $1B in 2024, $9B in 2025 and estimated to be $47B in 2026.

All the AI companies together are pulling in hundreds of billions of dollars per year in revenue and it's going up quickly. To me, taking on trillions in debt in order to make hundreds of billions in revenue doesn't seem crazy.

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

#132

Post by eru »

grey-area wrote: post #125
eru wrote: post #76

Earlier quoted context omitted.

I'm in Singapore. My money is in VWRA (without bothering to remove AI companies). Your idea for the tool sounds interesting. I suspect even just copy-and-pasting the paragraph you wrote here into your favourite AI programming agent would get you pretty close to a prototype you can play around with. At least in terms of 'spit out buy / sell orders' and leaving out the API integration.

You are perhaps not as diversified as you think in this top heavy market. https://stockanalysis.com/quote/lon/VWRA/holdings/ ~ 5% Nvidia as biggest holding and 20% in US listed tech companies (most of which are heavily invested in AI), over 60% in the US market, so this ticker is very similar to investing in the US market alone. Also when a bubble like this deflates it hits almost everything so it is very hard to avo…

You are right about the numbers. But wrong about what I am thinking: I'm aware, and it's a deliberate choice on my part to allocate in proportion to market cap.

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

#133

Post by eru »

rapind wrote: post #88
eru wrote: post #76

Earlier quoted context omitted.

I'm in Singapore. My money is in VWRA (without bothering to remove AI companies). Your idea for the tool sounds interesting. I suspect even just copy-and-pasting the paragraph you wrote here into your favourite AI programming agent would get you pretty close to a prototype you can play around with. At least in terms of 'spit out buy / sell orders' and leaving out the API integration.

Yes, it's a very simple concept IMO. Without API access or at least CSV import / export integration w/ a brokerage for automation I don't think I'd use it. I could have an agent use the Web UI on my behalf, but honestly, that feels like lighting tokens / gas on fire.

So at least IBKR has some MCP (or so) integration.

If you are not trying to be current up to the minute, you can get stock information from eg Yahoo or elsewhere on the open web.

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

#134

Post by eru »

dgellow wrote: post #109
eru wrote: post #49

Earlier quoted context omitted.

As a retail investor, you should buy an index fund and then forget about it. By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in. To be more precise: buy the lowest cost most diversified index fund you can buy and then hold it. If you want to spend some smarts to get a better return: look at how to minimise taxes an…

> By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in. I think you overestimate traders. What we call smart money is very often really, really dumb from a macro perspective. Professional traders believe hype and follow trends. There is still at least 2 thesis playing out at the moment for the AI trade, and you don’t…

The average professional trader might not be that smart, who knows. But:

(A) I am not confident I am smarter than the average professional trader here.

(B) You don't need to win against the average professional trader: you need to win against the smartest ones. And: I'm not so sure I am smarter than the average professional trader anyway.

About your theses: my null hypothesis is that these things are already priced in.

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

#135

Post by eru »

csomar wrote: post #110
eru wrote: post #49

Earlier quoted context omitted.

As a retail investor, you should buy an index fund and then forget about it. By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in. To be more precise: buy the lowest cost most diversified index fund you can buy and then hold it. If you want to spend some smarts to get a better return: look at how to minimise taxes an…

I wonder with the spacex thing if this should be revised. “Smart money” have figured out what you are doing and they are at the gates.

Sorry, could you please explain?

For the record, I deliberately picked an index fund (VWRA) that's not choosy about who to admit, so SpaceX would have been in there pretty quickly no matter what shenanigans they are doing with the S&P500.

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

#136

Post by eru »

rapind wrote: post #120
eru wrote: post #49

Earlier quoted context omitted.

As a retail investor, you should buy an index fund and then forget about it. By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in. To be more precise: buy the lowest cost most diversified index fund you can buy and then hold it. If you want to spend some smarts to get a better return: look at how to minimise taxes an…

I think there is now so much passive investing that wall street and tech bros are gaming it, and it's no longer based in reality (fundamentals). I mean Elon's deal to get SPCX short listed with NASDAQ was directly targeted at 401(k)s. Not sure how it's all going to play out, but this ginormous increase in passive investing over the past decade or so, mainly in S&P 500, seems like a vulnerability. Small cap might be a…

> I think there is now so much passive investing that wall street and tech bros are gaming it,

Yes, they are supposed to! And they are supposed to compete for the privilege. That's how index funds can add and remove stuff from the index so cheaply.

I agree that the S&P500 is not an optimal index. I picked something (VWRA) that's more diversified and less picky about who to admit.

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

#137

Post by eru »

worik wrote: post #93
eru wrote: post #49

Earlier quoted context omitted.

As a retail investor, you should buy an index fund and then forget about it. By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in. To be more precise: buy the lowest cost most diversified index fund you can buy and then hold it. If you want to spend some smarts to get a better return: look at how to minimise taxes an…

> As a retail investor, you should buy an index fund and then forget about it. That definitely was true. I am unsure it is still true. Index funds have taken so much of the trade volume the are becoming momentum strategies So long as you are happy following the market wherever it goes, and if the recent past is a guide then up is the direction, then yes. But given the nepotism and corruption in the highest reaches of…

> I am unsure it is still true. Index funds have taken so much of the trade volume the are becoming momentum strategies

I don't understand how that's supposed to work?

Btw, keep in mind that index funds are typically really, really keen to lend their shares out to short sellers.

> But given the nepotism and corruption in the highest reaches of USAnian society (e.g. Trump's crypto currency scams and the blatant inside dealing and rule ignoring of the Space X float) the future looks much less certain than the past

That's a big part of why I am invested in a global index fund, not anything America specific.

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

#138

Post by eru »

collabs wrote: post #107
worik wrote: post #93

Earlier quoted context omitted.

> As a retail investor, you should buy an index fund and then forget about it. That definitely was true. I am unsure it is still true. Index funds have taken so much of the trade volume the are becoming momentum strategies So long as you are happy following the market wherever it goes, and if the recent past is a guide then up is the direction, then yes. But given the nepotism and corruption in the highest reaches of…

The future always has risks but the question is that does an option better than index funds exist?

Depending on jurisdiction and taxation, yes. Eg in many places owner-occupied housing is favoured, and might make sense to acquire, even though otherwise it's silly: a single lumpy usually highly levered position; no diversification; multiple times your networth and with very high transaction costs.

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

#139

Post by aurareturn »

dgellow wrote: post #122
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…

There is literally no moat…

Then start your company and go compete against OpenAI and Anthropic then.

Heck, just take Kimi K3 and start your training run from that.

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

#140

Post by ghtbircshotbe »

eru wrote: post #49
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…

As a retail investor, you should buy an index fund and then forget about it. By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in. To be more precise: buy the lowest cost most diversified index fund you can buy and then hold it. If you want to spend some smarts to get a better return: look at how to minimise taxes an…

I like it how morningstar provides a graph of the stock price and morningstar's target price for the past few years, and the target price always closely follows the stock price, even as the stock price fluctuates wildly. All that genius analysis somehow concludes that the company is worth exactly what the market says it is, right up to the point that it doubles/halves in price.
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