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> In those intervening years, a bunch of AI companies might be unable to pay back their debts. Dumb question: isn't a lot of the current investment in the form

> In those intervening years, a bunch of AI companies might be unable to pay back their debts. Dumb question: isn't a lot of the current investment in the form of equity deals and/or funded by existing tech company profit lines? What do we actually know about the debt levels and schedules of the various actors?

dfedbeef 1y ago
We'll find out
wmf 1y ago
Google, Meta, and Microsoft are funding AI out of their existing profits so they will probably be fine. The others may be getting GPUs in exchange for equity but they still have to pay real money for the datacenters, generators, etc. That real money is borrowed and they would default in case of a crash. Potentially hundreds of billions of defaults.
- hollerith 1y ago
  Huh? Surely most of the investment in AI labs is equity investment, not debt (so it can't be defaulted on).
  - wmf 1y ago
    The latest xAI GPU SPV is 2/3 debt; maybe that's a trend or maybe not. The debt will be defaulted and the equity will be recapitalized to almost nothing. Same outcome.
    - hollerith 1y ago
      That is interesting because bubble debt is a lot more hazardous and more likely to cause a recession than bubble equity is, hence all the rules on lenders around Capital Adequacy, Liquidity, and Risk Management/Supervision for which no analog exists for equity investors.
      - wmf 1y ago
        Do those rules apply to private credit and sovereign wealth?
        hollerith 1y ago
        Probably not. They might apply only to banks or even only to banks subject to EU or Anglosphere jurisidiction.
    - dh2022 1y ago
      Can you share some details about AI Debt Financing? In particular, who supplies the cash? I am thinking that commercial banks would not be able to supply all of this cash because of post-2008 regulations. Commercial banks may supply some cash but not all. If debt is supplied by some pension funds or some sovereign wealth then the real economy would not be affected as much...

dfedbeef 1y ago

We'll find out

wmf 1y ago

Google, Meta, and Microsoft are funding AI out of their existing profits so they will probably be fine. The others may be getting GPUs in exchange for equity but they still have to pay real money for the datacenters, generators, etc. That real money is borrowed and they would default in case of a crash. Potentially hundreds of billions of defaults.

hollerith 1y ago
Huh? Surely most of the investment in AI labs is equity investment, not debt (so it can't be defaulted on).
- wmf 1y ago
  The latest xAI GPU SPV is 2/3 debt; maybe that's a trend or maybe not. The debt will be defaulted and the equity will be recapitalized to almost nothing. Same outcome.
  - hollerith 1y ago
    That is interesting because bubble debt is a lot more hazardous and more likely to cause a recession than bubble equity is, hence all the rules on lenders around Capital Adequacy, Liquidity, and Risk Management/Supervision for which no analog exists for equity investors.
    - wmf 1y ago
      Do those rules apply to private credit and sovereign wealth?
      - hollerith 1y ago
        Probably not. They might apply only to banks or even only to banks subject to EU or Anglosphere jurisidiction.
  - dh2022 1y ago
    Can you share some details about AI Debt Financing? In particular, who supplies the cash? I am thinking that commercial banks would not be able to supply all of this cash because of post-2008 regulations. Commercial banks may supply some cash but not all. If debt is supplied by some pension funds or some sovereign wealth then the real economy would not be affected as much...