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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

#161

Post by fsckboy »

sndgndgndgndy wrote: post #21
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.

bean counters are better at establishing asset value than you are, and as I mentioned elsewhere, income streams are assets also

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

#162

Post by eru »

dgellow wrote: post #146
eru wrote: post #134

Earlier quoted context omitted.

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 i…

You actually don't need to win against the smartest ones, it's not really who is on the other side of the trade. There is an interesting dynamic where the space where retail investors operate isn't really the same space as the "smart money", and because of that there are a lot of small-ish arbitrage opportunities that you can advantage based on your industry expertise (I don't mean insider trading, I mean your unders…

> That being said I would really not recommend people who don't have money and time to lose to actively invest. It's a fun hobby and can be pretty profitable, but not for everyone

Do you have any idea on the risk adjusted returns of your hobby? As far as I can tell, it's counterproductive for most people. (And if it ain't, you should probably go earn the big bucks at a hedge fund instead of whatever you are currently doing.)

And _iff_ you want more risk, you can add leverage to your portfolio instead of concentrating on individual stocks.

I say 'risk adjusted returns', because if the general market went up, it's relatively easy for some folks to be up more if they got lucky and concentrated on the winners (but equally easy to get unlucky and get below market returns).

Btw, I live in a jurisdiction without capital gains tax, so in theory active trading would be especially lucrative for me; I just doubt I can beat the market.

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

#163

Post by eru »

icedchai wrote: post #155
dgellow wrote: post #109

Earlier quoted context omitted.

> 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.

Why the averaging?

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

#164

Post by eru »

Eddy_Viscosity2 wrote: post #143
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…

How does 'the market' properly set prices if everyone blindly buying the same things without any discriminators?

What do you mean by everyone?

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

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

#165

Post by eru »

csomar wrote: post #152
eru wrote: post #135

Earlier quoted context omitted.

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.

There's like a few thousand companies in the index my ETF is following. I don't have opinions on every last one of them. I just (automatically) follow the market consensus.

Keep in mind that index funds are generally really, really keen to lend out their shares to short sellers, too.

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

#166

Post by icedchai »

eru wrote: post #163
icedchai wrote: post #155

Earlier quoted context omitted.

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.

Why the averaging?

Mostly, I didn’t have all the cash to invest at once. There is also a psychological component: I feel better investing on down days.

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

#167

Post by xmprt »

onion2k wrote: post #25
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…

I think in this case, the OP is talking about "loss" from a financial perspective. Airlines are incredibly useful for society but don't make money and operate on razor thin margins. AI will likely have a similar financial picture. Of course you'll have you Claude and Codex enthusiasts just like you have the Delta vs United frequent flyers but a lot of people just book the cheapest ticket they can find from an aggregator website.

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

#168

Post by lelanthran »

robomartin wrote: post #153
lelanthran wrote: post #11

Earlier quoted context omitted.

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.

LLMs are probabilistic. I am too. The probable outcome of highly leveraged, loss-making companies trying to land grab with no clear path to profit and absolutely no moat is... probably failure.

As AI proponents and AI coders are quick to tell you, the probable outcome is usually quite consistent. If it weren't, they wouldn't be using AI in the first place.

It's a bit ironic that many are expecting success for companies whose only product is a probability distribution, pointing to outliers such as Amazon as evidence of probable success.

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

#169

Post by don_esteban »

misterderpie wrote: post #66
gpt5 wrote: post #57

Earlier quoted context omitted.

How can people in Hacker News still doubt AI's benefit when they are seeing in front of their eyes every technical profession getting disrupted to oblivion in the last year. Just ask basically any software engineer how much their profession has changed over the last 12 months Obviously there is risk, but can't we really extrapolate the AI gains forward and just see how big it's ahead to become?

> every technical profession getting disrupted to oblivion Where is this disruption? The longer we go, the more people report that the supposed net-gain of easily 100s of percents is not visible. I do strongly believe "It's just a tool" - A powerful one, but not one like the invention of the steam machine.

Actually, I think that the analogy with the steam engine is a very good one.

Prior to the steam engine, almost all energy used by the human civilization has been generated by human and/or animal muscles. Yes, there have been other (water/wind mills, sailing boats), but the application of those has been rather limited to very specific tasks and/or locations.

Prior to current AI, almost all 'mental' work has been done by human minds. There have been some intrusion by calculators/computer systems, but their applicability has been rather limited. AI promises to do to mental labour what steam engine (and later power tools) did for manual labour. (Including the atrophy of muscle/mind ...)

Regarding 'It's just a tool': How much emphasis do you put on 'just'? Starting to use a new tool (especially if it is a powerful one) has many downstream consequences, and 'how' the tool is used (not only by an individual, but as a society as a whole) matters a lot.

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

#170

Post by karmakurtisaani »

bawolff wrote: post #156
karmakurtisaani wrote: post #141

Earlier quoted context omitted.

> 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.

Yeah I tried to make fun of it, but not that successfully I guess.
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