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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

#151

Post by derektank »

mapping365 wrote: post #9
mrloopex wrote: post #5

Earlier quoted context omitted.

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…

That's the financial stakes here. That's why it's all or nothing. You're spending on a level that is only justified by the bonafide machine god being ushered into existence, not productivity or coding tools (and on relatively short time horizon). So if this doesn't change the near term trajectory of humanity to a parabolic move upward there is going to be a lot of economic pain. It's not just the spending, it's that…

We’re still spending less as a percent of GDP on the AI datacenter buildout than was spent on building the railroads in the 1880s (Morgan Stanley estimates 2.5% of GDP will be spent on AI this year, as compared to 6% for railroads)

Nobody expected a machine god from Union Pacific

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

#152

Post by csomar »

eru wrote: post #135
csomar wrote: post #110

Earlier quoted context omitted.

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.

Introduce a vapid company(ies) to the index that will have no future cash-flow and withdraw the liquidity to these "investments". If your index fund has SpaceX in it, Elon musk has basically funneled money out of your retirement account to his insanity rides.

If you think SpaceX has even a minuscule chance of succeeding then this conversation doesn't make sense to carry on.

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

#153

Post by robomartin »

lelanthran wrote: post #11
robomartin wrote: post #8

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

I remember when hundreds of dotcom companies were going to go broke, and they all did. Not sure what your point is.

Simple: None of us have a crystal ball. Trying to predict the future is foolish.

I am not saying that what we are seeing might not be problematic. I am only saying that nobody really knows. We can't know.

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

#154

Post by grey-area »

eru wrote: post #132
grey-area wrote: post #125

Earlier quoted context omitted.

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.

So you’re heavily invested in this AI bubble then. Your biggest holding is Nvidia.

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

#155

Post by icedchai »

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…

I've been averaging into IGV (Software / SaaS ETF) over the past few months. Before that, I was averaging into CIBR (Cybersecurity ETF.) CIBR has bounced back big time, while IGV is only up a bit.

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

#156

Post by bawolff »

karmakurtisaani wrote: post #141
bawolff wrote: post #46

Earlier quoted context omitted.

Talk about taking a quote out of context...

> taking a quote What exactly do you mean here? Like quoting it the right way?

Reddalo omitted the negation when quoting the parent comment. In general its considered rude to quote someone in a way that implies they are saying something different from what they said.

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

#157

Post by arka2147483647 »

awongh wrote: post #101
mapping365 wrote: post #14

Earlier quoted context omitted.

I think these large numbers are casually thrown about, but the real meaning is mind boggling. 1 trillion dollars is the entire US defense budget - aircraft carriers, nuclear submarines, health care, salaries, stealth fighters ect. The hidden AI debt alone is more than that https://asia.nikkei.com/business/technology/five-us-tech-gia... just for five tech giants (not to mention all the other smaller players like neocl…

Most people mean this to say that 1 trillion is a lot of money, but it still comes back to what you believe AI is- in hindsight, does 1 trillion dollars to build the internet sound like a lot or a little? (That is, spending 1 year of USA's defense budget to get the entire internet) It comes back to your perception of what AI is because to people who say AI is glorified auto-complete won't believe that the money is wo…

> Most people mean this to say that 1 trillion is a lot of money, but it still comes back to what you believe AI is- in hindsight, does 1 trillion dollars to build the internet sound like a lot or a little?

You are talking about the Value of AI, but the key is the Revenue of AI.

If AI companies cannot get the Revenue to pay for all those investments, somebody is going bankrupt.

A trillion is a lot of money to cover.

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

#158

Post by fsckboy »

stnikolauswagne wrote: post #20
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 agree with the general sentiment, but I feel like it is also a bit reductive. Assets in this space are near impossible to evaluate and can fluctuate in value greatly based on other actors. In a hypothetical scenario where, say, google releases a new frontier model that somehow leapfrogs the competition by 5 months all of a sudden the value of the Asset of Fable 5 and GPT 5.6 might completely crater.

bankers do not engage in "impossible to evaluate", they simply don't. bankers are reductive.

the rest of your post says "there's risk". equity and debt investors understand risk, and either engage or don't. If they do a poor job of understanding risk, they either get lucky or run out of funds to participate.

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

#159

Post by fsckboy »

ragebol wrote: post #16
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…

Yes, they have assets: GPUs sitting in datacenters, and data. Question is: is that worth enough to cover the debt after the market crashed?

contracted revenue streams and subscriptions are also assets. Having first claim on those has tangible value.

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

#160

Post by fsckboy »

Kon5ole wrote: post #117
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…

>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 the ideal scenario, but you can also have immense debt because someone once thought you had assets.

you're describing risk that's a future worry, you don't get debt in the present without assets
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