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The biggest sign of an AI bubble is starting to appear – debt

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Re: The biggest sign of an AI bubble is starting to appear – debt

#11

Post by diggan »

JCM9 wrote: post #4

The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage. The funding ecosystem will be set back years as this wipes…

> I hope I’m wrong

I kind of hope you're right. Any "hyped" industry/sector is bound to eventually needing to get back to reality, and focus on things that actually work, rather than spraying and praying prototypes and over-hyping them.

The individuals and companies building real products that actually improve something will stick around, either as they are, or at least as ideas, and most of the interesting stuff tends to happen when the hype dies down, as the builders continue as they were, but all the rest of the riffraff disappears.

There will still be a community and the ideas won't magically disappear, just smaller and more focused, which to me sounds like a much needed improvement over the current state of things.

Re: The biggest sign of an AI bubble is starting to appear – debt

#12

Post by morninglight »

JCM9 wrote: post #4

The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage. The funding ecosystem will be set back years as this wipes…

No problem. They can use some of that data center compute power to mine bitcoin.

https://www.whitehouse.gov/presidential-actions/2025/03/esta...

Re: The biggest sign of an AI bubble is starting to appear – debt

#13

Post by piva00 »

piker wrote: post #3

> "SPVs mean companies like Meta do not need to show the debt as their debt," Perkins writes in a note. He likens today's financing tactics to the subprime era when firms shifted risk off the books to reassure investors. But it's not? If the SPV is doing its job as a limited liability entity, Meta should be bankruptcy remote from the SPV. Presumably accounting rules would look through that SPV if Meta was actually re…

Isn't the problem the creditors exposed to the SPVs though?

Meta, and others might be shielded from it but there's someone on the other end of these debts, if the SPVs are accruing massive amounts of debt and go bankrupt there are lots of obligations that will go unfulfilled, bringing the whole house down.

It's quacking very similar to other accounting tricks, caham, financial engineering, to hide bad numbers somewhere else. CDSs and CDOs were a different mechanism with the same purpose: hide risk away into overly complex instruments.

Re: The biggest sign of an AI bubble is starting to appear – debt

#14

Post by zerosizedweasle »

philipwhiuk wrote: post #7
JCM9 wrote: post #4

The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage. The funding ecosystem will be set back years as this wipes…

The real question is if enough fails to cause systemic risk. Hopefully the GSIBs ( https://en.wikipedia.org/wiki/List_of_systemically_important... ) aren't too badly exposed.

I think the debt is what makes the risk systemic. Sure it can be overvalued, but alone that won't cause a generationally painful economic meltdown. It's the spending and debt that make something that is a bubble into something truly dangerous. All the exotic private credit and structured finance that is powering this thing along with the lack of any viable revenue stream to keep up with the debt plus interest that make this thing so dangerous. Sure maybe Meta can take a huge hit and limp away (it's still gonna be very painful for them and people who own a lot of its stock) but can OpenAI, can CoreWeave or any of the firms that lent to them? It's a domino effect. The fact that Meta is doing this is a huge red flag. The problem is the market is rewarding this endless cash burn without any way to generate the appropriate revenue. Once reality catches up there are a ton of knock on effects.

Re: The biggest sign of an AI bubble is starting to appear – debt

#15

Post by JCM9 »

diggan wrote: post #11
JCM9 wrote: post #4

The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage. The funding ecosystem will be set back years as this wipes…

> I hope I’m wrong I kind of hope you're right. Any "hyped" industry/sector is bound to eventually needing to get back to reality, and focus on things that actually work, rather than spraying and praying prototypes and over-hyping them. The individuals and companies building real products that actually improve something will stick around, either as they are, or at least as ideas, and most of the interesting stuff ten…

Well we’re gonna get, and need, a big correction. I just hope it’s a “big correction” and not a financial implosion that sets the startup ecosystem back a generation.

Re: The biggest sign of an AI bubble is starting to appear – debt

#16

Post by TrackerFF »

The thing is, the models do work. They add value to me each and every day, to a degree almost no other tech has done before.

But that doesn't take away the fact that this is extremely expensive stuff (not for me, but for the companies pushing the envelope), far too expensive. And it is really taking its toll on other resources, like electricity.

Re: The biggest sign of an AI bubble is starting to appear – debt

#17

Post by uxhacker »

JCM9 wrote: post #4

The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage. The funding ecosystem will be set back years as this wipes…

It’s pretty scary. According to Barron’s, MicroStrategy, a bitcoin treasury company, alone makes up about 5% of the U.S. convertible bond market. That’s remarkable given that it isn’t a typical tech or biotech growth company issuing convertibles, but essentially a Bitcoin treasury company.

Re: The biggest sign of an AI bubble is starting to appear – debt

#18

Post by vessenes »

META free cashflow last year : $20bn. Cash on Hand: $47bn. "Worrying" Debt: $15bn sought.

ORCL, the other company they're talking about: $20bn in Cash from Operations, $21bn in capital expenditures, ORCL Cash on Hand: $11bn. ORCL's recent debt flotation: $18bn.

ORCL has 40 years to pay back; demand was reportedly $88bn for the offering. I imagine pricing was close to T-bills.

These flotations posit that demand for compute will continue to increase over the next 40 years, and that infra providers who can get there early will do better than Treasuries.

Calling it a bubble just because the numbers are big is the weakest of financial journalism. Now, do you think inference and datacenter demand will drop? If so, it's worth asking if and when these datacenter will pay, and if they don't, who will take the hit. That would be useful analysis.

I'm pro these plays -- right now inference has an 80% margin; that's after paying the fully capitalized costs of datacenters + compute + the datacenter margin. To the extent a company controls its own inference stack and can do so with a 5% cost of capital, they should do it.

Re: The biggest sign of an AI bubble is starting to appear – debt

#20

Post by fhd2 »

JCM9 wrote: post #4

The current bubble is getting scary. When this thing pops the blast it’s going to be a real mess. The big tech firms will hurt, fire some execs in a show of “making changes,” do a bunch of layoffs across “AI” teams to show the market they’re pivoting and getting costs in order, and move on. The startups ecosystem will suffer extensive and catastrophic damage. The funding ecosystem will be set back years as this wipes…

What about the rest of the economy? Deutsche Bank recently said that the AI hype is the only thing holding the US stock market together. And if that crashes, it tends to ripple world wide.

Scary stuff, at least to someone who doesn't know all that much about market resilience. With what little I know, I'm hoping for a soft pop with slow deflation. But big tech seems to just pump harder right now.

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