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  • Hacker News
  • Has anyone seen a definitive mathematical proof of this? I have seen countless articles and exposes about the hidden debt. These are incredibly sophisticated companies so presumably they wouldn’t let themselves get into a company ending bind. But what are the chances this is actually an MBS type situation where the system is truly overloaded and a few sacrificial lambs are needed?
    by bix6
  • > Has anyone seen a definitive mathematical proof of this? I have seen countless articles and exposes about the hidden debt.

    There's an old WSB saying: the market can remain irrational longer than you can remain solvent. The AI craze is that but on 'roids.

    > These are incredibly sophisticated companies so presumably they wouldn’t let themselves get into a company ending bind.

    The problem is, company C-levels don't care about the long term health of the company. They only think about next quarter (in a misguided interpretation of "shareholder duty/fiduciary duty") and their bonuses tied to their KPIs.

    > But what are the chances this is actually an MBS type situation where the system is truly overloaded and a few sacrificial lambs are needed?

    The system definitely is overloaded to hell and beyond after well over a decade of ZIRP. That money never got deflated out of the system in a healthy way and now everything is looking to fall apart.

    Unfortunately, such events are already "priced in". VC essentially is built on 1 of 100 investments striking it big and 99 going bust. A market correction won't hurt the big guys, but it will definitely hurt all the small guys.

    by mschuster91
  • > I have seen countless articles and exposes about the hidden debt.

    eh trolling for clicks. It's just not on the balance sheet (if i have my terms correct) so you have to look in a different report to find the numbers. If it was truly hidden then discovery of the debt would trigger lawsuits from investors. Major investors know about it already that's why no one is getting upset over it except for laymen. btw, laymen in the stock market (retail investors) just serve as red meat or cannon fodder for actual traders with real money and real information.

    edit: there will def. be significant winners and losers, the stakes are very high and the dollar amounts are very large.

    by chasd00
  • People were saying this about the Lehman Brothers and the entire financial sector at the time, right up until their bankruptcy and the great recession. Some predictions turn out to be correct. And with the benefit of hindsight, obviously so, though how much of a hindsight is needed to make it obvious is up for debate. I would argue for the AI bubble, very little indeed.
    by runarberg
  • I mean, it is. Coreweave for example is very clearly a sacrificial lamb.

    FWIW Enron was also a „sophisticated company“ at the time

    by dgellow
  • the fact fortune magazine is the one ringing the alarm bell here is arguably more useful information than any attempt at a "mathematical proof".
    by billywhizz
  • A lot of people want to see AI fail/collapse.

    A lot of publications pay attention to that.

    A lot of people love reading things (often only reading things) that make then feel right/correct/justified.

    A lot of publications live or die on ad views.

    And just like that we have a viable media business model!

    by WarmWash
  • what happens when you mix world wars, potential food and water shortages, and a rising unrest with the local governments? (edit: and a massive inequality in resource distribution). (edit 2: and a drop in jobs).

    Any historical precedent for this all occurring together with technological hype/fast growth?

    by mannanj
  • Pre-GFC subprime mortgage market size was $1.3T. Seems like AI debt market is plenty big enough to reverberate widely.
    by jgalt212
  • 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 return to whatever they were doing before i.e. their previous levels of free cash flow. Naively, they could still repay the $1.65T, with interest, in ~6 - 8 years.

    They will, of course, not do that, and will instead try to protect their plummeting stocks and get into a series of lawsuits as they try to claw out of their commitments (hey, maybe the circular investments even cancel out... it's a feature, not a bug!) and a lot of smaller companies go under, and some may angle for bailouts. But even then, the damage to the broader economy seems limited, and this debt doesn't seem that extreme?

    by keeda
  • You also need to remember that a huge portion of the 1.65 trillion isn’t actually debt, but leases the hyperscalers have committed too. This is important because there’s no interest to be paid on leases. A ton of the money is multi billion dollar payments that are owed a decade from now.
    by HDThoreaun
  • There’s plenty of second order effects. What would this do to the insurance or pension firms who hold this debt? The banks who hold this debt? Also a lot of this debt is possibly held by smaller players who would get wiped out.

    The GFC “proper” was the dramatic crash in the liquidity of credit markets, not strictly a corollary of the losses on property and mortgage-backed securities.

    by rich_sasha
  • 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.

    by seizethecheese
  • It appears that it is more likely that AI will cause the next financial crisis than crypto will.

    Still no credible long term solution to the so-called "UBI" for all and the abundance fantasies and the utopia that was supposedly "promised".

    by rvz
  • It completely unclear where this 1.65T is going to come from to pay the bill. Revenue from people buying AI doesn’t even come close to covering it, even with crazy aggressive assumptions about the cashflow that could be generated from that.

    The Wall St vs Silicon Valley showdown that’s setting up here looks like it will be quite epic. If last week was any preview, get your popcorn ready.

    by cmiles8
  • The number is large - but I'm not quite sure it's existential. The hyperscalers have been making a ton of money and I'm not quite convinced that 200B of debt for Amazon is "world ending".
    by nemothekid
  • From the lender's standpoint they can repossess the data center.

    It's not like their collateral is a bunch of NFTs.

    by lxm
  • I get the sentiment, but providing an actual number stretches the word "hidden" beyond its breaking point.

    Now if the number was ?? and labeled "undisclosed"... that would present a more serious problem.

    by buredoranna
  • Feels a bit early for this decade's "once in a lifetime" financial crisis, but I guess AI just makes everything more efficient.
    by georgemcbay
  • My AI recommended that a chuckle at this comment would be a great balance of engagement, humor and foresight.

    chuckle

    by ccvannorman
  • Hopefully the general public doesn’t get stuck with the ‘too big to fail’ bill .. again :(
    by bobanrocky
  • of course they will. has capitalism changed anytime recently?
    by red-iron-pine
  • this would be the real travesty
    by utternerd
  • Is there any evidence to suggest that we won't be? I'd argue that's been the status quo for decades now, so I wouldn't expect anything else (as much I hate the current state of affairs).
    by vaindil
  • I worry that all this talk about "China can't be allowed to beat the West on LLMs" is a setup to saddle the public with a bailout in the name of national security.
    by sweetjuly
  • https://archive.ph/Lek29

    For those without accounts, given faded body

    by bravetraveler
  • The people who made money on fiber and railroads were the inheritors after the timeline mismatch bankrupted the original players who did the investment. Even if AI turns out to be everything it promises, you can mistime the investment and lose everything.
    by mapping365
  • Fiber and railroads don't depreciate after 3 years of use like AI chips.

    Fiber and railroads don't need tens of billions of dollars in continuing yearly maintenance expenses to keep them from going stale.

    by afry1
  • As a bystander directly immune to the fortunes of AI going up or down, it does feel like there are a lot more people thinking this is inning 9 of the LLM story than there are people thinking it's inning 3. Which makes it tempting to believe it's probably closer to inning 3.
    by missedthecue
  • Maybe inning 9 game 1 of the series.
    by techblueberry