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Is it me? I feel like we are entering an era where it has become possible for one of the big companies to fail.
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But money has not been cheap for a while now so this is interesting. And yes, if you can do something more profitable with it, borrowing is always smart no, regardless of how cheap it is?
It’s a matter of perspective. Cheaper to borrow today than in the years 1969-2005…
$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…
Is it me? I feel like we are entering an era where it has become possible for one of the big companies to fail.
What do we mean by big companies? Because SpaceX is giant and can for sure fail. But do you mean companies with an actual, reliable business model?
It means "if they fail, goverment will bail them out claiming their failure would take out the whole economy".
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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.
US Government won’t fail. They can certainly just default on all debt and keep on going like many other countries. It will be a shitty country going forward, but not a failed one. The best thing you can do is diversify assets to be prepared for that scenario, so you do not fall into the hell of a permanent underclass, in perpetual servitude.
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What do we mean by big companies? Because SpaceX is giant and can for sure fail. But do you mean companies with an actual, reliable business model?
"Too big to fail" does not mean "impossible for them to fail". It means "if they fail, goverment will bail them out claiming their failure would take out the whole economy".
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Is Google really a critical dependency for android? I've installed Lineage OS before which worked.
Yes, because of play services. Eventually the world would adapt, but the immediate effect is that nearly every major commercial app that is increasingly requiring play integrity, play services will stop working. Push notifications will also break, as will the payment network. Google Pay, Apple Pay, Samsung Pay etc are essentially shadow banks now. The real impact of Google going dark though is less Android and more a…
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Would depend on the yield on debt vs yield on equity (factoring in earnings growth rate) If your company trades at 100x sales you should probably sell the equity.
It’s not just yield. Its debt gets paid first. And if you miss the interest payments the debt holders get the company.
So, applied to GOOG, Alphabet Management is betting they will grow more than 4.5% per year at least until 2030.
There is also some weirdness, like Alphabet making a 500 million USD bet short term USD interest rates will be lower than 4% over the 2025-2028 period.
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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 e…
And now SpaceX, who is not at all in the same financial situation as Nvidia, wants to borrow money too: https://www.reuters.com/business/media-telecom/spacex-banker...