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The AI trade now runs on borrowed money, and the lenders are repricing it
- deleted 2mo ago[deleted]
- yucongchen 2mo agoThe real cost isn't the inference bill, it's the senior engineer hours spent debugging subtle hallucinations that slip past naive test suites. We stopped bleeding money on trivial boilerplate by implementing model routing through FlintAPI, ensuring only complex logic actually hits the expensive frontier endpoints. Treating LLMs as a monolithic tool instead of a tiered pipeline is what quietly destroys your margins.
- klodolph 2mo agoA while ago I was thinking, “Gee, AI is so complicated, how can I keep up with the landscape?” After reading these articles go by so often, it feels like what I actually can’t keep up with is the bond market. To paraphrase Trotsky, you may not be interested in the bond market, but the bond market is interested in you. I want to be able to read the signals at the bottom of this article, and divine some kind of prediction that can guide me… I don’t know, to choose whether I should buy a house or change the investment strategy in my retirement fund or something. But I’m just seeing all these signals go by, waiting for the story to be written, which only happens when the dust settles. I guess I’ll go back to not understanding AI, instead of not understanding the bond market.
- mrloopex 2mo agoDon’t forget there is a constant pressure for everyone to have an opinion on how this is going to end while hoping it ends tomorrow so they can be vindicated. The dotcom bust took a decade to grow and collapse. I think it is too early to make predictions with AI. I mean the sentiment here is either it will dry up the world and kill us all or transcend humanity, there’s no gray area. I don’t want to fall into the emotional sieve that seems to drive everything.
- 4fggfd 2mo ago[dead]
- belZaah 2mo agoWhat’s weird is how emotional people get on this. I told publicly (because I was asked, not out of an obligation to have an opinion), that the prices we pay for LLMs are likely to go up because that’s what happens when the ratio of operational assets to foreign capital drops due to the capital having been turned into heat rather than operational assets. The grief I got from people, dear Lord…
- klodolph 2mo agoI think that opinion is as reasonable as any. I feel compelled to argue against it (I even thought out the arguments in my head!) but my compulsion to have an opinion on HN is a disease, and you made a point of saying that you gave the opinion because asked.
- mapping365 2mo agoThat's the financial stakes here. That's why it's all or nothing. You're spending on a level that is only justified by the bonafide machine god being ushered into existence, not productivity or coding tools (and on relatively short time horizon). So if this doesn't change the near term trajectory of humanity to a parabolic move upward there is going to be a lot of economic pain. It's not just the spending, it's that the expectations for the returns to justify them are in a relatively short period of time.
- klodolph 2mo agoWhat’s your reasoning for saying that the spending level requires that level of justification?
- mapping365 2mo agoI think these large numbers are casually thrown about, but the real meaning is mind boggling. 1 trillion dollars is the entire US defense budget - aircraft carriers, nuclear submarines, health care, salaries, stealth fighters ect. The hidden AI debt alone is more than that https://asia.nikkei.com/business/technology/five-us-tech-giants-hidden-debts-soar-to-1.65tn-on-opaque-ai-funding https://asia.nikkei.com/business/technology/five-us-tech-gia... just for five tech giants (not to mention all the other smaller players like neoclouds)
- rapind 2mo agoI was able to create a custom index based on the top 500 that I stripped the big AI stocks from (shovels too). Then I added decent chunks of international, small cap, and treasury ETFs to it. I have no illusions that I can time a bubble, but I'm hopeful I'm at least partially shielded, and most importantly I feel better about ignoring wall street again.
- reddalo 2mo ago>I can time a bubble What do you mean? Selling everything before this bubble pops?
- bawolff 2mo agoTalk about taking a quote out of context...
- karmakurtisaani 2mo ago> taking a quote What exactly do you mean here? Like quoting it the right way?
- bawolff 2mo agoReddalo omitted the negation when quoting the parent comment. In general its considered rude to quote someone in a way that implies they are saying something different from what they said.
- karmakurtisaani 2mo agoYeah I tried to make fun of it, but not that successfully I guess.
- reddalo 2mo agoSorry, my bad. I just wanted to know what the OP meant by "timing a bubble", I didn't want to insinuate that they said something different.
- eru 2mo agoAs a retail investor, you should buy an index fund and then forget about it. By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in. To be more precise: buy the lowest cost most diversified index fund you can buy and then hold it. If you want to spend some smarts to get a better return: look at how to minimise taxes and fees.
- worik 2mo ago> As a retail investor, you should buy an index fund and then forget about it. That definitely was true. I am unsure it is still true. Index funds have taken so much of the trade volume the are becoming momentum strategies So long as you are happy following the market wherever it goes, and if the recent past is a guide then up is the direction, then yes. But given the nepotism and corruption in the highest reaches of USAnian society (e.g. Trump's crypto currency scams and the blatant inside dealing and rule ignoring of the Space X float) the future looks much less certain than the past
- collabs 2mo agoThe future always has risks but the question is that does an option better than index funds exist?
- eru 2mo agoDepending on jurisdiction and taxation, yes. Eg in many places owner-occupied housing is favoured, and might make sense to acquire, even though otherwise it's silly: a single lumpy usually highly levered position; no diversification; multiple times your networth and with very high transaction costs.
- eru 2mo ago> I am unsure it is still true. Index funds have taken so much of the trade volume the are becoming momentum strategies I don't understand how that's supposed to work? Btw, keep in mind that index funds are typically really, really keen to lend their shares out to short sellers. > But given the nepotism and corruption in the highest reaches of USAnian society (e.g. Trump's crypto currency scams and the blatant inside dealing and rule ignoring of the Space X float) the future looks much less certain than the past That's a big part of why I am invested in a global index fund, not anything America specific.
- dgellow 2mo ago> Gee, AI is so complicated, how can I keep up with the landscape? The interesting thing is: you do not need to keep up. It’s actually way easier and cheaper to wait a bit for the chaos to stabilize, then learn to use the tools. You don’t need to have been someone who experienced the whole evolution, non stop at the edge. It’s ok to let the enthusiasts discover how things work and eventually learn from them. Just like any other technology. The whole „you will be left behind“ is nonsense. If AI is the future, then it will here to stay and you can let others map the domain first
- smackeyacky 2mo agoThis is the way. You can jump in and out at any time and let everybody else wear the pain of working it out.
- novocainn 2mo agoI think there's a common misconception at play here: using proprietary software thought of as a skill Must be a mix of decades of corporate branding in software and the erosion of trust in the labor market coupled with the rise in noise from various sources... Skills are what they always have been. Logical thinking, good memory, long attention span, critical thinking, communication (the ancient Mediterranean, the culture which forged the currently dominant "West", valued 'rhetoric' almost above everything else besides physical prowess) Being well connected, having a sharp mind, cultivating deep knowledge of science, philosophy, language, mathematics. These things are timeless. Using the current brand of software well is a moot point. Software can only become dominant if it falls in line with mainstream design. Learn design, you can intuit how to use relevant software and the badly design tools will be weeded out naturally. In a nutshell, exercise body and mind. Be strong, cultivate strong relationships. Everything else is just background noise.
- fsckboy 2mo agoyou won't get debt if you don't have assets that can be repossessed, so having debt means these AI companies have assets: that's a strong thing, not a weak thing. interest rates are what they are, and they go up and down for reasons exogenous to your industry; debt regardless of interest is always "cheaper" than equity, and the shareholders expect to make their money from equity, paying interest on debt as a type of impedance matching and cost of keeping more equity. so everything is going according to plan, and nobody knows the future, and predicting collpses has never been a profitable business. I didn't have to read past the first few confusing contorted and convoluted paragraps of this article to decide to come over here and explain it, this is all straightforward corporate finance 102 and the article is fluff
- ragebol 2mo agoYes, they have assets: GPUs sitting in datacenters, and data. Question is: is that worth enough to cover the debt after the market crashed?
- sssilver 2mo agoDon’t they all have mostly the same data, with a small / negligible delta between each other?
- ragebol 2mo agoMaybe so. That leaves just the hardware. Deprecates badly. Maybe gamers will take it off their hands gladly?
- stnikolauswagne 2mo agoI'd argue that data in this case is more like the actual models they use, their codebase and their engineering talent. Not deep enough in the sauce to say one way or another how big the realistic delta between companies is though.
- AlexCoventry 2mo agoI would be delighted to see a glut of compute. I'm not optimistic, though.
- robomartin 2mo agoI remember when Amazon was going to go broke every year for over a decade. Until they didn't.
- lelanthran 2mo agoI remember when hundreds of dotcom companies were going to go broke, and they all did. Not sure what your point is.
- robomartin 2mo agoSimple: None of us have a crystal ball. Trying to predict the future is foolish. I am not saying that what we are seeing might not be problematic. I am only saying that nobody really knows. We can't know.
- lelanthran 2mo agoLLMs are probabilistic. I am too. The probable outcome of highly leveraged, loss-making companies trying to land grab with no clear path to profit and absolutely no moat is... probably failure. As AI proponents and AI coders are quick to tell you, the probable outcome is usually quite consistent. If it weren't, they wouldn't be using AI in the first place. It's a bit ironic that many are expecting success for companies whose only product is a probability distribution, pointing to outliers such as Amazon as evidence of probable success.
- anukin 2mo agoThat’s because they were reinvesting the profits. I think they had given a profitable quarter just to show that they could do it.
- aurareturn 2mo agoAnd I'm sure Anthropic would be immensely profitable if they stopped investing their inference profits into training newer models.
- defactor 2mo agoWarren Buffet way Revolutionary technology + massive adoption ≠ good investment Investors have poured money into a bottomless pit, attracted by the growth and glamour of the industry. The airline industry since its birth has had a collective net loss, in aggregate, despite moving hundreds of millions of people. Commodity Product, no switching costs. Infinite competition
- aurareturn 2mo agoIt isn't a commodity product in my opinion. Far from it. I think it will ultimately be a monopoly or duopoly for SOTA. The mid to low end is commodity, yes. But SOTA models are not commodities. The number of competitors for SOTA drops by a few every year. The winners make more money, get more revenue, buy more compute, train better model with compute, buy best talent, and the cycle goes. I think it's easier to fall behind and never catch back up than people think. One disastrous training run can leave a lab months to a year behind. For example, Meta's disastrous LLAMA 4 models. Meta is lucky to have their ads business as a funding source. However, Anthropic's revenue is growing so fast, that ability to use ads as a funding source to stay in the race may not last much longer for Meta. To me, SOTA LLM training is very much like new chip fab nodes. One disastrous node can put you behind for many years or forever. The cost to build the next chip node doubles every every 4 years (Rock's law). The cost to train the next SOTA model likely has some similar power law which means over time, it's too costly for losers to keep up. The only reason TSMC isn't a defacto monopoly for advanced chip nodes is strictly due to geopolitics.
- orwin 2mo agoBut who needs SOTA models, really? It was necessary 10 months ago, but now?
- aurareturn 2mo agoAll things equal, let's say your SaaS startup uses GPT 5.0 (release 10 months ago) and my business uses Fable 5. We have the same business goals, same talent level, same strategies. I think the chance of my business winning against yours is higher. I can't prove it. It's just my opinion.
- mempko 2mo agoAs a side note. All money is borrowed. That's how money gets created! Short explainer video by the great late David Graeber https://youtu.be/LxJW7hl8oqM?is=IjdyHwZchaiMHk4C https://youtu.be/LxJW7hl8oqM?is=IjdyHwZchaiMHk4C
- eru 2mo agoFirst, and obviously, the article is talking about capital when they say 'money'. Not all capital is borrowed. Second, not all money is created via borrowing (but the vast majority is!) And the YouTube video you linked to is very confused even about the money that is created via borrowing. Government debt is not required to create money. The Bank of Japan bought stock ETFs to get 'freshly printed' money into circulation. ('Freshly printed' in scare quotes, because these days it's just entries in a database.) Another example: Singapore's central bank (MAS) does not use Singapore government debt to create Singapore dollars; I'm not even quite sure they would even be allowed to. You can say that money itself is a debt of the central bank; and that's sort-of true, but it's not what David Graeber talks about. A bit of a pedantic last point: silver coins or bitcoin also require no borrowing to create. Silver coins have been used as money, bitcoin could conceivably be used as money. (There are other problems with these options, but that's besides the narrow point.)
- mempko 2mo agoWhen you mentioned silver coins and bitcoin that helped me understand your position. All modern money is debt. Bitcoin is NOT a form of money. Silver coins do require a debt, which is taxes people owe which they can use the silver coins to pay. Graeber wrote about money in great detail in Debt the First 5000 years.
- worik 2mo agoTotally depends on what you define money as. If "money" is the some function of all outstanding credit, then yes, it is created (mostly) by bank lending If you define money as a web of trust then it is mostly created by those that create the rules. The state
- JumpCrisscross 2mo ago“None of this yet resembles a credit cycle turning, and the signals that would show one are quiet… What the data describes is closer to the opposite of a contraction: a credit expansion absorbing record supply and charging progressively more for it. The pricing runs in a ladder. … Where the ladder breaks is at the bottom. CCC and Lower Option Adjusted Spread signal rose twenty-two points over thirty days to 88 and sits at Critical, markedly higher than the Investment Grade or High Yield spread signal levels, and AI paper does not price at CCC. Private Credit Stress sits at 96, up thirty-one points, consistent with reporting data center financing has moved toward private credit and off-balance-sheet structures where the ultimate holder is harder to identify. What separates an expansion from a contraction is not the level of spreads but whether new issuance keeps clearing. An expansion growing more expensive still places its paper; a contraction is when deals stop pricing at any spread. The market is still clearing. It is clearing at a price that has moved in one direction.“
- carlsborg 2mo agoMake the most of your heavily subsidised $20 / $200 subscriptions while the credit spreads allow it.
- petesergeant 2mo agoI’m not sure that’s quite the right framing. If Anthropic goes bust, Fable persists as an asset that can be run by someone who didn’t have to pay to develop it, probably profitably, and probably in a way that gets cheaper over time. The debt pony show is paying for the next model.
- okzgn 2mo agoKey reports to understand the root problem (no ROI): - Gen AI: Too Much Spend, Too Little Benefit?: https://www.goldmansachs.com/insights/top-of-mind/gen-ai-too-much-spend-too-little-benefit https://www.goldmansachs.com/insights/top-of-mind/gen-ai-too... (Goldman Sachs) - AI’s $600 Billion Question: https://sequoiacap.com/article/ais-600b-question/ https://sequoiacap.com/article/ais-600b-question/ (Sequoia Capital) - The Simple Macroeconomics of AI: https://www.nber.org/system/files/working_papers/w32487/w32487.pdf https://www.nber.org/system/files/working_papers/w32487/w324... (MIT / Daron Acemoglu)
- gpt5 2mo agoHow can people in Hacker News still doubt AI's benefit when they are seeing in front of their eyes every technical profession getting disrupted to oblivion in the last year. Just ask basically any software engineer how much their profession has changed over the last 12 months Obviously there is risk, but can't we really extrapolate the AI gains forward and just see how big it's ahead to become?
- vrighter 2mo agodisruption != benefit. I was called quite disruptive in class when I was young. I'm sure my teachers never meant it as a compliment.
- SCdF 2mo agoHow can people not trust in anecdotes and vibes while avoiding studies, do you mean? Isn't that the point here? That everyone thinks massive disruption is happening and everyone is 100xing their productivity, but it's not actually showing up in the numbers anywhere?
- verisimi 2mo agoPeople aren't doubting the benefit. Lenders are doubting their return. People's benefits have nothing to do with it. The benefits would go in a minute, if doing so yielded a better return.
- ccortes 2mo ago
- tyre 2mo ago> Grey Swans: risks that were in the data but overlooked or dismissed because few had synthesized the signals into a coherent picture. Directly conflicts with > Alert and Critical signals represent readings that have historically been associated with meaningful financial stress. These are all pretty standard things to track and are regularly (and publicly!) Not saying we’re not in a bubble or near/far from it popping, but these metrics aren’t going to precisely tell you _when_, which is pretty much the only thing that matters.
- SknCode 2mo agoI am sorry, but this site is vibecoded beyond my comprehension. What is it trying to say?
- ww520 2mo agoSpeaking of AI stock, what has happened to NOK?
- blitzar 2mo agoThe headline and the link have nothing to do with each other.
- jojobas 2mo agoEverything has been running on borrowed money since the 17th century.
- raincole 2mo agoAm I too dumb to read or this thread is heavily botted? Why most top comments are unrelated to the linked site (which is pretty obscured already)?
- febed 2mo agoThe link is broken