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Big Tech is borrowing like never before

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Re: Big Tech is borrowing like never before

#31

Post by krupan »

ElProlactin wrote: post #26

The NVIDIA case is such a strange example to use to make the argument the author is trying to make. NVIDIA raised $25 billion and had $85 billion in orders. Because of the demand, it was able to upsize its offering and issue bonds in maturities ranging from 2 to 30 years at quite favorable interest rates. The amount raised is a quarter of a year's free cash flow and the spread tightened during the book building proce…

What are you assuming the author case is? The article points out that by normal logic these companies are overvalued and so owning their stock is risky. Now that they've taken on all this debt, it's even riskier.

Re: Big Tech is borrowing like never before

#33

Post by alexashka »

thewebguyd wrote: post #18
fhdkweig wrote: post #11

Earlier quoted context omitted.

After the bailouts of 2008, I think the only thing to fear is that the US government will fail first. As long as they can afford to keep big businesses going, they will. Whether things will get bad enough that the government can't afford to do that is an exercise to the reader.

I mean, we are approaching the point where the government can't afford to do that. Debt is near $40 trillion, and debt held by the public has recently just slightly tipped over 100% of the US GDP, so we are long past affordability. Interest payments on US Debt are already $1T annually. If GDP stops growing faster than the interest rate on the debt, we're "cooked" as the kids say. If we lose reserve currency status, w…

Money is just numbers.

If we didn't have food, you'd have a point. If factories weren't churning out more stuff than anyone knows what to do with - you'd have a point.

All this is is a bunch of incompetent, spoiled idiots in positions of power that will sooner or later have to make room for people who know what they're doing.

Nobody in this globalized economy is interested in things no longer working - even the incompetent idiots. All that has to happen is 60+ year old retards who thought they were going to move up the power ladder because 'seniority' will need to go fuck off and play golf and their children will need to go fuck off and work in lower middle management.

That's all.

Of course they spend billions every year telling you otherwise. Their other big lie is that we can't tax anyone or do anything because 'they will just leave' or 'China' or 'USSR' or 'terrorism' or some other bullshit. It's all bullshit, it's been bullshit and it will continue to be bullshit until you turn your brain on for 2 minutes and realize it's either retards in charge or not - the rest is talk.

Re: Big Tech is borrowing like never before

#34

Post by vb-8448 »

dmoy wrote: post #19

$500B is a lot of debt, it's comparable to the three largest car companies' debt. It's still not super huge compared to the amount of debt in other industries, but I guess the thought is it's riskier?

Debt is directly tied with the ability to repay it, if the cash flow is enough to keep paying it, it's not a big issue, but thing can go horribly pretty fast if someone start having cash problems.

Re: Big Tech is borrowing like never before

#35

Post by idiotsecant »

xnx wrote: post #4

Smart to borrow when money is cheap if you think you can do something more profitable with it.

How do these AI companies turn profitable on a short enough timescale for that to make sense? Suppose a step change AI model comes out tomorrow with good enough reasoning to basically replace an employee. Businesses need to retool workflows and processes to accommodate, even if it's better. This is years away, not months. There's not enough market for the compute. And that all assumes science fiction level results, which there is absolutely no indication they will achieve.

Re: Big Tech is borrowing like never before

#36

Post by dgellow »

zahlman wrote: post #25
dgellow wrote: post #3

Full title: "Big Tech is borrowing like never before and the Fed just made that a lot more expensive"

Which is strange, because they did not in fact implement a big (or any) increase in the federal funds rate. I also notice the article is "tagged" as if its title had been split on lowercase 's'es: > Big tech i > borrowing like never before and the fed ju > T made that a lot more expen This level of attention to detail does not exactly inspire confidence.

Yeah, that does look pretty low quality and doesn’t really make sense. However from what I understand it is expected for rates to increase by end of the year

Re: Big Tech is borrowing like never before

#37

Post by spwa4 »

thewebguyd wrote: post #15
smrtinsert wrote: post #9

Is it me? I feel like we are entering an era where it has become possible for one of the big companies to fail.

Financially? Sure. Politically? Not a chance, they'll get bailed out or partially nationalized. Frontier labs will be considered essential to national security, Microsoft is basically a public utility at this point, Facebook is too important for the spread of propaganda (although this one has less of a case/justification for a government bailout), Amazon (via AWS) runs massive parts of the federal gov (along with Azu…

Indeed. People forget how quickly and easily companies become too big too fail. The US government bailed out, took over, privatized (not just once) Iridium, just because they had satellites and Global Crossing, just because of fiber ownership.

AI labs would be a lot worse. A lot.

Re: Big Tech is borrowing like never before

#38

Post by ElProlactin »

krupan wrote: post #31
ElProlactin wrote: post #26

The NVIDIA case is such a strange example to use to make the argument the author is trying to make. NVIDIA raised $25 billion and had $85 billion in orders. Because of the demand, it was able to upsize its offering and issue bonds in maturities ranging from 2 to 30 years at quite favorable interest rates. The amount raised is a quarter of a year's free cash flow and the spread tightened during the book building proce…

What are you assuming the author case is? The article points out that by normal logic these companies are overvalued and so owning their stock is risky. Now that they've taken on all this debt, it's even riskier.

The words "valuation" and "overvalued" appear exactly 0 times in the post. The author didn't make the argument you're claiming.

Actually I misspoke in my original comment. NVIDIA has about $100 billion/year of free cash flow. So $25 billion is a quarter's free cash flow, not a half a year's.

$25 billion of debt against a $5+ trillion equity value and ~$100 billion of annual free cash flow barely moves the needle on equity beta or default risk.

Re: Big Tech is borrowing like never before

#39

Post by zer00eyz »

dmoy wrote: post #19

$500B is a lot of debt, it's comparable to the three largest car companies' debt. It's still not super huge compared to the amount of debt in other industries, but I guess the thought is it's riskier?

500B on software would be a lot. On infrastructure, it really isnt.

We spent this much (without adjusting for inflation), in 5-10 years on telecom build out in the lead up to the dot com crash. I'm fairly sure that there is still leftover capacity in the ground (dark fiber) today that we can leverage.

Smell like a bubble yet?

Looking back to that pre 2000's era, SUN was running on 50% margins, Cisco at 68%

Nvidia, 70% (and MS openly admits that they have GPU's on shelves not making money: https://www.datacenterdynamics.com/en/news/microsoft-has-ai-... ) Micron (memory) 70%, SK Hynix (SSD's) 70%.

For as much fun as the dot com bubble was, for as hard as the pop was, what came after was MUCH better. This burst is going to be brutal, and the sooner it happens the sooner we can move on to actual (sane) innovation, that leverages this build out.

Re: Big Tech is borrowing like never before

#40

Post by roxolotl »

dmoy wrote: post #19

$500B is a lot of debt, it's comparable to the three largest car companies' debt. It's still not super huge compared to the amount of debt in other industries, but I guess the thought is it's riskier?

The reason it is so noteworthy is because these companies are based upon valuations which assume mostly debt free companies with giant free cash flows. If Google starts to look like Ford a lot of the assumptions around why it’s worth so much money go out the window. Of course we’re not there but this is a change in direction which is new and noteworthy.
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