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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

#61

Post by NoboruWataya »

> "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.

The article doesn't explain how Meta are actually using SPVs. The suggestion is that the debt is in fact Meta's debt but the use of an SPV somehow means they don't need to show it on their balance sheet. Traditionally if you're using an SPV it genuinely means it's not your debt, in that you won't go bankrupt if the deal flops and the assets are underwater. (And they're not your assets, either.)

There are valid concerns about debt fuelling outsized investments in AI, but this article isn't really saying anything of substance. Plenty of non-bubbles attract significant debt investment as well.

Ultimately, debt is a way to transfer risk. It becomes an issue if it results in a lot of risk being transferred to parts of the economy that can't really afford it (like retail investors, or systemically important banks). As long as the people taking on the risk know what they're getting into and we won't need to bail them out if they lose their shirt, it's not really a problem.

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

#62

Post by fhd2 »

JCM9 wrote: post #48
fhd2 wrote: post #20

Earlier quoted context omitted.

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.

Any big bust will have broader market implications, but I don’t think this has the broad systemic impact that the financial crisis did. It will likely be really ugly for those caught up in it, but a news story and minor blip to the 401k of everyone else. If you are well diversified keep your head down and keep going. If you’re a VC that heavily invested in AI, I suggest preparing for a Cat 5 hurricane now. The bigges…

Well, that sounds pretty good to me, hope you're right.

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

#63

Post by mbesto »

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 startups ecosystem will suffer extensive and catastrophic damage.

These a feature, not a bug of how the startup ecosystem works.

> The funding ecosystem will be set back years as this wipes out a bunch of VCs and investors.

Once again, a feature. There's too many VCs and too many funds.

> the likes of which we haven’t seen since financial firms imploded in 2008.

Institutional financials firms dwarf VC private capital. This alarmist comment makes it sound like a nuke going off in a Nevada desert is going to kill a major US city.

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

#65

Post by infecto »

MarcelOlsz wrote: post #50
infecto wrote: post #45

Earlier quoted context omitted.

That itself is not proof that AI is not here to stay. It’s a short minded world view. Value is absolutely being generated but of course not everywhere and I am certainly not defending valuations.

Value is being generated for owners. Not for me. I don't care at all about "value". I don't know what perspective you are thinking from. Are you rich? AI and crypto and every flavor of the year tech garbage are just siphons. Judging the tech on its own merits is missing the forest for the trees.

Dismissing an entire technology because you personally haven’t figured out how to make it useful is a cope, not an argument.

Am I rich? What are you even on about.

I can now spend a few dollars and classify a large dataset that would have taken me real time before. I can again spend a few dollars and turn unstructured data into structure. There absolutely is value to be found in the current gen of tech. Comparing it to crypto is a weak argument. Just because you don’t find value does not mean other organizations and people are not.

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

#66

Post by zero_shift »

qsort wrote: post #22
diggan wrote: post #11

Earlier quoted context omitted.

> 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…

> I kind of hope you're right. I couldn't care less if big tech gets knocked down a peg, but in many quarters the AI boom is what's keeping the lights on. A market correction of that magnitude would mean a lot of pain for a lot of normal people, it's not exactly something I'm cheering on...

Continuing the masquerade will only make things worse

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

#67

Post by infecto »

emilecantin wrote: post #51
infecto wrote: post #21

Earlier quoted context omitted.

I think the thing that most of the folks miss is exactly that. AI is adding value and it’s here to stay. Absolutely the OpenAI story is looking concerning but I am not sure it is this doomsday AI winter.

Both can be true at the same time. Similar to the early days of the Internet, the dot-com bubble eventually popped, but the Internet (and dot-coms, for that matter) didn't go away. What people are saying is that this mad race to throw cash at anything that has "AI" in it will eventually stop, and what will remain are the useful things.

No the tone is generally that some mythic AI winter is going to happen because of current valuations and that AI is simply the current crypto grift.

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

#68

Post by vslira »

vessenes wrote: post #18

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 co…

> Calling it a bubble just because the numbers are big is the weakest of financial journalism

Yeah, exactly. The current AI investment wave could be a bubble. Or not. If anyone knows, there are millions to be made in the stock market. The answer depends on the actual expectations for those investments and how actual business metrics are tracking them.

But pointing to ambiguous “evidence” just adds noise. If someone screams fire in a movie theater journalist should report if there’s a fire or at least smoke, not write articles showing concern about how flammable all the furniture is

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

#69

Post by peterkap »

JCM9 wrote: post #48
fhd2 wrote: post #20

Earlier quoted context omitted.

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.

Any big bust will have broader market implications, but I don’t think this has the broad systemic impact that the financial crisis did. It will likely be really ugly for those caught up in it, but a news story and minor blip to the 401k of everyone else. If you are well diversified keep your head down and keep going. If you’re a VC that heavily invested in AI, I suggest preparing for a Cat 5 hurricane now. The bigges…

https://www.slickcharts.com/sp500

NVDIA makes up 7.5% of the S&P500. It will not be a minor blip to 401ks if it collapses.

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

#70

Post by svara »

fhd2 wrote: post #20
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.

> Deutsche Bank recently said that the AI hype is the only thing holding the US stock market together.

Doesn't sound right. Russel 2000 is up ~10% YTD.

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