The biggest sign of an AI bubble is starting to appear – debt
1–10 of 129 posts
Re: The biggest sign of an AI bubble is starting to appear – debt
#2Re: The biggest sign of an AI bubble is starting to appear – debt
#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 reachable. It doesn't make a good comparison to GFC where everyone was nominally on the hook but had that risk "insured" with CDSs, etc.
Re: The biggest sign of an AI bubble is starting to appear – debt
#4The 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 out a bunch of VCs and investors. Some of the “AI startups” will be sold in fire sales for parts so investors can at least minimize losses and most of the rest will vaporize, the likes of which we haven’t seen since financial firms imploded in 2008.
I hope I’m wrong, but the most experienced trusted folks I know are already repositioning themselves to weather the upcoming storm.
Re: The biggest sign of an AI bubble is starting to appear – debt
#5B... bb... bbbut i thought we are so close to AGI and all the AI companies can easily make bazillions off of targeted advertising and and AI can do all my employees jobs for 1/1000th their salary and and...
Re: The biggest sign of an AI bubble is starting to appear – debt
#6>Meta seeks $29 billion via private capital for its AI data center buildout.
This would be worrisome if they didn't have the cash to pay for it, but that's peanuts to Meta. It seems more like tax avoidance schemes than anything else.
Re: The biggest sign of an AI bubble is starting to appear – debt
#7The 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.
Re: The biggest sign of an AI bubble is starting to appear – debt
#8Dang. My kids are just getting the hang of using ChatGPT as a way to generate random quizzes and additional homework problems; to the point where both of them just automatically use the AI to "fill in the gaps" each evening. (Prior to AI, additional HW was met with less enthusiasm than you'd think!) I told my wife that the billionaire class spent the last few decades cheating the tax system (and, thus, the education system) just to weirdly dump a trillion dollars into the AI ecosystem to build the world's finest tutors. I really hope that doesn't Go Away™.
Re: The biggest sign of an AI bubble is starting to appear – debt
#9B... bb... bbbut i thought we are so close to AGI and all the AI companies can easily make bazillions off of targeted advertising and and AI can do all my employees jobs for 1/1000th their salary and and...
Hey now! I can’t raise money telling VCs the truth!
Re: The biggest sign of an AI bubble is starting to appear – debt
#10> "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…
Perkins’ point is valid. It’s still shareholder assets and resources at the end of the day even if via a SPV. The banks did this sort of thing in the financial crisis with all sorts of subsidiaries and circular funding.
“Hey it’s OK that mortgage side business is going belly up but we bought that special insurance.”
“Cool, so who sells that insurance?”
“Um, actually I think we do via our other SPV”
“$&@!”
Not 100% analogy here but similar shenanigans where company A is taking out debt, to build a datacenter, to buy GPUs, to sell services to startup B that Company A gave cash to to buy said services. Startup B has no viable business model and implodes. Company A goes from looking like a genius to a financial nuclear waste dump almost overnight. It’s financial shell games all over again.