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AI's debt binge can't last, hidden borrowing reaches $1.65T

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Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#161
post #13

Earlier quoted context omitted.

I mean, it is. Coreweave for example is very clearly a sacrificial lamb. FWIW Enron was also a „sophisticated company“ at the time

Enron committed serious fraud, and not because what they did was made illegal after the fact. Unless I'm missing something, none of the big AI companies have committed serious fraud (or at least, not any that's been revealed).

Im pushing back on the „sophisticated companies“, I don’t mean to say they are committing actual fraud. My point was that Enron finances were extremely complicated, on purpose, to hide the fact it was a massive fraud. Before collapse Enron was talked about as one of the most innovative and successful company ever. People who should have known better assumed the company would of course not put itself in a bad situation by committing the most flagrant fraud ever.

For the AI bubble too many people assume that large companies having a stake in it will of course know what they are doing, be careful and not expose themselves too much or do wild bets that don’t pay off. But looking at the level of capex from hyperscalers, the amount of circular financing by NVIDIA/google/microsoft, the level of debt raised for datacenters (and its associated raising interest rates), the lack of moat for AI labs, the absurd AI labs valuations, OpenAI ever increasing infra expenditure commitments (we are at more than $750B for 2030), Oracle dire situation (to say the least), the mounting pressure from China/open models, and the fact that 2 companies represent the vast, vast majority of the compute demand. None of that looks like a healthy, sustainable industry. In fact it looks like the most obvious financial engineering ever, where the only ones benefitting are NVIDIA, memory manufacturers, and hyperscalers. And they are doing what is necessary to keep the game going. If the demand for AI vendors isn’t increasing massively in the coming years the whole thing will go down. And the level of demand required need to be pretty much the AI booster dreams where everything becomes agentic everywhere. Short of that we are very likely to see things go downhill

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#162
post #130

Genuine question: these companies had double-digit billions of free cash flow per quarter, about $0.3T a year aggregate, before the AI boom started and they began splurging on CapEx; is the $1.65T number that bad in that context? Let's assume the extreme worst case scenario where the bubble pops so comprehensively that the entire AI business is written off, without any change to the debt owed, and these companies ret…

There’s plenty of second order effects. What would this do to the insurance or pension firms who hold this debt? The banks who hold this debt? Also a lot of this debt is possibly held by smaller players who would get wiped out. The GFC “proper” was the dramatic crash in the liquidity of credit markets, not strictly a corollary of the losses on property and mortgage-backed securities.

Makes sense, when a crash happens liquidity will be terrible -- almost by definition, as the hyperscalers won't have the cash on-hand to make good on their debts. But what I'm trying to understand is exactly what happens to those who are holding that debt, given that the debtors will soon be making a lot of money again (from their pre-AI businesses)?

Won't the debt-holders have some claim to that future cash flow to be made whole?

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#163

As a bystander directly immune to the fortunes of AI going up or down, it does feel like there are a lot more people thinking this is inning 9 of the LLM story than there are people thinking it's inning 3. Which makes it tempting to believe it's probably closer to inning 3.

That's a mildly weird take. Historically, by the time a bubble becomes broadly visible/acknowledged, it has already burst; it's just that the shockwave hasn't quite hit yet. You really only saw _widespread_ "eh, this is maybe a bit problematic" in about 2007, for the bubbles which drove the GFC, say.

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#164
Prediction: it will last, debt will be somehow converted to "value", and everyone in US will feel that they are better off now wrt the rest of the planet, making others more and more miserable (wars, their property being taken by US capitalists, etc).

Unless someone stops finally US. And even then I am not sure that it will bring good, because before drowning, they will try to take all the others with them. After all, "it's theirs"..

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#165
Related in other news:

>[deepmind exec] said today’s enormous AI capital expenditures are not yet supported by current revenue, but argued that betting against the long-term trajectory of the technology would be a mistake. ... he noted that “the revenues from AI don’t sustain the capital expenditures we’re making so far,” while emphasizing that the early foundations of [recursive self improvement] are already emerging.

>Sekhon compared the evolution of AI to earlier industrial breakthroughs, saying, “Steam engines were used to create the next steam engine,” suggesting that today’s AI systems will increasingly be used to develop more capable successors. https://www.citybiz.co/article/883339/google-deepminds-jasje...

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#166

> AI’s insatiable need for debt has so far been matched by investors’ appetite for it, but they may turn nauseous on the belly-busting volumes coming from tech giants. Headline doesn't really match the facts in the article. The article seems to say "hyperscalers are borrowing an enormous amount and so far people are lending to them. Other people are worried that this will stop".

> "hyperscalers are borrowing an enormous amount and so far people are lending to them. Other people are worried that this will stop" You say this as if when "lending stops", it isn't a big deal. What you're describing is a concern for a collapse in finance markets.

So, what happens when it stops in this particular instance?

The article is about hyperscalers which are massively profitable irrespectively of AI. If the lending stops and this leads to paused or cancelled infra projects, but these companies are still able to service their existing debts, how does this inevitably lead to a collapse?

Hoping for a more nuanced analysis than “la la la we all know this time isn’t different”. Every time is different, and it’s instructive to know how different each time is.

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#167
post #130

Genuine question: these companies had double-digit billions of free cash flow per quarter, about $0.3T a year aggregate, before the AI boom started and they began splurging on CapEx; is the $1.65T number that bad in that context? Let's assume the extreme worst case scenario where the bubble pops so comprehensively that the entire AI business is written off, without any change to the debt owed, and these companies ret…

There’s plenty of second order effects. What would this do to the insurance or pension firms who hold this debt? The banks who hold this debt? Also a lot of this debt is possibly held by smaller players who would get wiped out. The GFC “proper” was the dramatic crash in the liquidity of credit markets, not strictly a corollary of the losses on property and mortgage-backed securities.

> What would this do to the insurance or pension firms who hold this debt?

If the debt is serviced, nothing.

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#168

As a bystander directly immune to the fortunes of AI going up or down, it does feel like there are a lot more people thinking this is inning 9 of the LLM story than there are people thinking it's inning 3. Which makes it tempting to believe it's probably closer to inning 3.

Maybe inning 9 for LLMs, inning 3 for AI? Already the models have moved from language models to multi modal.

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#169
post #38

Earlier quoted context omitted.

Internet didn't disappear after the dotcom crash, but a lot of money did. This is what could happen here I think.

The internet remains the biggest singular development of my entire life. The most valuable companies in the world are internet companies. Journalists have been eager to call AI "over" since 2022, and yet: - Models just got good at writing code this year - Models just got good at editing images last year - Models just got good at cinematic video this year This hasn't even played out. It hasn't even started. Why on ear…

> I literally do not write code anymore.

but you are taking advantage of a subsidised service. What happens when developers are forced to pay the full price (i.e. $2000 a month instead of $200 a month)

Re: AI's debt binge can't last, hidden borrowing reaches $1.65T

#170
post #169
post #38

Earlier quoted context omitted.

The internet remains the biggest singular development of my entire life. The most valuable companies in the world are internet companies. Journalists have been eager to call AI "over" since 2022, and yet: - Models just got good at writing code this year - Models just got good at editing images last year - Models just got good at cinematic video this year This hasn't even played out. It hasn't even started. Why on ear…

> I literally do not write code anymore. but you are taking advantage of a subsidised service. What happens when developers are forced to pay the full price (i.e. $2000 a month instead of $200 a month)

I'd assume open weight models hosted on openrouter aren't being run at a loss. As such, I've been experimenting with them lately and results are pretty promising. Requires slightly more patience and handholding than just cranking Opus 5 in Claude Code, but for the cost saving it's definitely worth it.
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