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

fortune.com

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

#141

Post by keeda »

seizethecheese wrote: post #136
keeda wrote: 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…

I think the stock wipeout would itself trigger a recession. If the hyperscalers needed to wipe out most of their income on interest expense they’d lose a large amount of their market capitalization. This could drop the stock market a huge amount, and a lot of spending is driven by the “wealth effect” of households feeling wealthy.

Right, a stock market crash would be very likely given how concentrated it is on the Mag-7 (or whatever Big Tech is called now.) The reduced consumer spending due to the reduced "wealth effect" makes sense, and it could worsen the downward spiral.

But it seems to me that if a stock market wipeout triggers a recession, it's because of deeper, pre-existing problems with the broader economy (inflation, jobs, war) and the stock market (concentration, unrealistic valuations) that are unrelated to the AI spending.

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

#142

Post by runarberg »

DeluluDon wrote: post #125
runarberg wrote: post #79

Earlier quoted context omitted.

I was there for the Great Recession, and they were indeed in the public discussion. I remember the year 2007, as a 20 year old anti-capitalist, I was counting days until the economic crash. As predicted by plenty of left-wing economists at the time. The only people who didn’t see it coming were the capitalists who were invested in the inflated market, and had bought into pseudo-scientific economic theories that serve…

Yeah me too, now I invest in dividend stocks.

I stay away from stocks, and instead focus on trying to get rid of capitalism.

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

#143

Post by tavavex »

donavanm wrote: post #117
missedthecue wrote: post #91

Earlier quoted context omitted.

You're not breaking anything to me. I deliberately phrased it as "directly immune" because I have no financial stake in AI-related companies. Obviously a debt-bomb of any type imploding reverberates across the economy.

> I have no financial stake in AI-related companies so zero exposure to any popular index? Even “ex-US” is tsmc and sk-hynix in a trenchcoat. I think it was BHP exclaiming that theyre an AI play because they cover 85% of the raw materials in DC build outs. In the current mania “no financial stake in AI-related” is a very bold claim.

You can just not have investments, which is more common than you think. Being young, lots of people I know don't even have enough of a cushion to invest, and others want to avoid all risk (especially in the current market) and park their money in a high-interest savings account.

Of course, this doesn't insulate you from second- or third-order effects, but it does remove the possibility of your money being immediately wiped out. It's really not as bold or crazy as you say it is.

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

#144

Post by rybosworld »

runarberg wrote: post #128
rybosworld wrote: post #126

Earlier quoted context omitted.

> The entire left wing of the political spectrum saw this coming Feel free to cite at least one reputable source.

https://en.wikipedia.org/wiki/Nouriel_Roubini https://en.wikipedia.org/wiki/Richard_Portes

Appreciate the links but I think we can both agree that there is no evidence that will come close to supporting "the entire left wing of politics" predicted the mortgage crisis

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

#145

Post by sublinear »

bastawhiz wrote: post #116
dgellow wrote: 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).

All usage of AI is fraud

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

#146

Post by HDBaseT »

tavavex wrote: post #143
donavanm wrote: post #117

Earlier quoted context omitted.

> I have no financial stake in AI-related companies so zero exposure to any popular index? Even “ex-US” is tsmc and sk-hynix in a trenchcoat. I think it was BHP exclaiming that theyre an AI play because they cover 85% of the raw materials in DC build outs. In the current mania “no financial stake in AI-related” is a very bold claim.

You can just not have investments, which is more common than you think. Being young, lots of people I know don't even have enough of a cushion to invest, and others want to avoid all risk (especially in the current market) and park their money in a high-interest savings account. Of course, this doesn't insulate you from second- or third-order effects, but it does remove the possibility of your money being immediately…

If you work, you inevitably have some investments occurring. But every working adult is invested in the stock market.

If you are young, impact is less scary because you still have 20, 30 or 40 years for the market to go back up.

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

#147

Post by prewett »

echelon wrote: post #38
scarlehoff wrote: post #22

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…

But were the internet companies of 2000 the ones who became the most valuable? GOOG, yes. Netscape and Yahoo, not so much. Amazon yes, pets.com, not so much. Sun is no more, Cisco to two decades to return to its dotcom bubble levels. Netflix was shipping physical DVDs. Microsoft could qualify as an internet company now with Azure, but not in 2000.

So AI can become as big as the internet, but that does not mean that the existing "AI" stocks will become big.

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

#148

Post by prewett »

axus wrote: post #47
rybosworld wrote: post #37

Earlier quoted context omitted.

You have any examples? Because all of the biggest and most famous crashes were events that only a very small minority of people ever saw coming. Tulips, 1929, Dotcom, Great Recession, 2010's Flash Crash - none of these were in the public discussion before they happened.

2008 financial crisis, after years of "mortgage bros" inflating that bubble.

(somewhat tangential) We've got too much subtle deception going on, let's call it what it was: the Panic of '08. Because there was definitely some panic going on. Solvent companies like GE were days away from bankruptcy because they couldn't get a routine short-term loan for payroll.

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

#149

Post by prewett »

runarberg wrote: post #142
DeluluDon wrote: post #125

Earlier quoted context omitted.

Yeah me too, now I invest in dividend stocks.

I stay away from stocks, and instead focus on trying to get rid of capitalism.

I hope you've taken a good look at the alternatives, because historically they've been terrible. Unless you mean "not capitalism but still market economy", or "European market economy 'socialism'", although I don't see how those are much different.

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

#150

Post by prewett »

runarberg wrote: post #111
rybosworld wrote: post #107

Earlier quoted context omitted.

I was too - and to be frank: it's dishonestly revisionist to say this was a topic in the public eye. There's a very good reason a book (and movie) like The Big Short was such a big hit. It's because it was about the handful of people who actually saw the crash coming and were confident enough to put their money and reputation on the line.

The entire left wing of the political spectrum saw this coming (except social democrats; whom I don’t consider left wing). And if you were shorting stocks to make money of off this, you probably were not left wing. Additionally, left wing economists get plenty of ridicule from main stream capitalists no matter what they say, so there really is no reputation to either earn nor to keep.

Do they see coming the predictable failure-modes of left-wing economies, though? History seems to suggest not. Also, did "the entire left-wing" see specifically a debt crisis through bad assumptions of creditworthy mortgage securities coming, or they just saw "capitalism" as a failure and here is a specific case, aren't we so prescient. That's not a prediction.
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