5 ms·
AI's debt binge can't last, hidden borrowing reaches $1.65T
- bobanrocky 2mo agoHopefully the general public doesn’t get stuck with the ‘too big to fail’ bill .. again :(
- utternerd 2mo agothis would be the real travesty
- sweetjuly 2mo agoI 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.
- vaindil 2mo agoIs 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).
- red-iron-pine 2mo agoof course they will. has capitalism changed anytime recently?
- WarmWash 2mo agoRaise your hand if you wouldn't pay $60/mo for SOTA LLM access/couldn't get $60 of value out of it monthly.
- analognoise 2mo agoI'd buy and run an open Chinese model before I ever paid for monthly access to any of these AI assholes.
- batperson 2mo agoBuy what? Hardware for inference? Pretty sure you'd still be giving money to "AI assholes", just somewhat different flavor. And you'd likely have to pay so much that the $60/mo would seem like peanuts, and in the end you'd still have a subpar experience/performance compared to SOTA.
- red-iron-pine 2mo agothat means they're foreign AI assholes they're still not your friends, and you need to buy the hardware from other assholes, who are also deep in this game, e.g. NVDA
- HDBaseT 2mo agoI currently pay for $20/m ChatGPT/Claude subscription. I currently put about $20-30/m into my OpenRouter account. I find this to be a pretty good split for all my side projects. A real developer wouldn't find this sufficient I would imagine but with the recent discounts on ChatGPT 5.6 Luma and Deepseek Flash V4 0731, I tend to have plenty of left off. I might be an odd case, tech stuff is my hobby so I enjoy playing with these tools. I do not have any media subscriptions (no Netflix, Amazon, etc) but 20-50$ a month isn't bank breaking.
- jgalt212 2mo agoPre-GFC subprime mortgage market size was $1.3T. Seems like AI debt market is plenty big enough to reverberate widely.
- bravetraveler 2mo agohttps://archive.ph/Lek29 https://archive.ph/Lek29 For those without accounts, given faded body
- georgemcbay 2mo agoFeels a bit early for this decade's "once in a lifetime" financial crisis, but I guess AI just makes everything more efficient.
- ccvannorman 2mo agoMy AI recommended that a chuckle at this comment would be a great balance of engagement, humor and foresight. chuckle
- 3738838383 2mo ago[flagged]
- kube-system 2mo agomoney printer is takin' a break > And unlike earlier periods of heavy debt, the Federal Reserve is no longer a big buyer of Treasuries, placing a heavy burden on private-sector investors.
- iAMkenough 2mo agopretty sure they’re literally printing useable currency with Trump’s face on it, cause printing money is cool again
- kube-system 2mo agoNot only is that not happening, it is currently illegal for the mint to do so. You may have seen the headline recently where Sec. Bessent held up a mockup of a bill printed out on a regular sheet of letter paper[0], and there's bill circulating to change the law, but it will not pass[1]. 0: https://ichef.bbci.co.uk/news/1536/cpsprodpb/97ed/live/f6126600-5ad9-11f1-8db2-c1599f6fe43e.jpg.webp https://ichef.bbci.co.uk/news/1536/cpsprodpb/97ed/live/f6126... 1: https://www.congress.gov/bill/119th-congress/house-bill/1761 https://www.congress.gov/bill/119th-congress/house-bill/1761
- iAMkenough 2mo agoWhere my recollection came from: https://www.pbs.org/newshour/politics/u-s-mint-produces-a-1-coin-bearing-trumps-face-to-help-celebrate-americas-250th-birthday https://www.pbs.org/newshour/politics/u-s-mint-produces-a-1-...
- natebc 2mo ago[dead]
- missedthecue 2mo agoAs 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.
- kube-system 2mo agoI think it's the magnitude of the situation that is more concerning than how close we are. We might not know when it pops but when it does, the dominos are in a pretty precarious position.
- XenophileJKO 2mo agoIt is like being in a city where Edison wired up lights.. and people are like..well I guess electricity has played out! We have only begun to extract the value of commoditized intelligence. Sure there are arguments on local models and pricing power.. but I think we will be compute constrained for the near future.
- scarlehoff 2mo agoInternet didn't disappear after the dotcom crash, but a lot of money did. This is what could happen here I think.
- echelon 2mo agoThe internet remains the biggest singular development of my entire life. The most valuable companies in the world are internet companies. Journalists have been eager to call AI "over" since 2022, and yet: - Models just got good at writing code this year - Models just got good at editing images last year - Models just got good at cinematic video this year This hasn't even played out. It hasn't even started. Why on earth would this be the end? The robotics story is just getting started, too. I literally do not write code anymore.
- 2mo ago
- seizethecheese 2mo ago> AI’s insatiable need for debt has so far been matched by investors’ appetite for it, but they may turn nauseous on the belly-busting volumes coming from tech giants. Headline doesn't really match the facts in the article. The article seems to say "hyperscalers are borrowing an enormous amount and so far people are lending to them. Other people are worried that this will stop".
- deleted 2mo ago[deleted]
- bigbuppo 2mo agoHistorically speaking, when the lending spigot is turned off it happens suddenly. But hey, it will be different this time. My future's so bright I gotta' wear million dollar shades.
- seizethecheese 2mo agoIt clearly will be a big problem when the lending stops, there’s just no evidence of it in the article.
- kube-system 2mo ago> "hyperscalers are borrowing an enormous amount and so far people are lending to them. Other people are worried that this will stop" You say this as if when "lending stops", it isn't a big deal. What you're describing is a concern for a collapse in finance markets.
- seizethecheese 2mo agoSure, I’m just saying the article doesn’t have any evidence of the lending stopping.
- kube-system 2mo agoBy the time we have that evidence, the crash is already beginning. What we have today is evidence that lending is overextended unless AI hyperscalers start to make huge profits.
- bix6 2mo agoHas 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?
- dgellow 2mo agoI mean, it is. Coreweave for example is very clearly a sacrificial lamb. FWIW Enron was also a „sophisticated company“ at the time
- bastawhiz 2mo agoEnron committed serious fraud, and not because what they did was made illegal after the fact. Unless I'm missing something, none of the big AI companies have committed serious fraud (or at least, not any that's been revealed).
- sublinear 2mo agoAll usage of AI is fraud
- dgellow 2mo agoIm pushing back on the „sophisticated companies“, I don’t mean to say they are committing actual fraud. My point was that Enron finances were extremely complicated, on purpose, to hide the fact it was a massive fraud. Before collapse Enron was talked about as one of the most innovative and successful company ever. People who should have known better assumed the company would of course not put itself in a bad situation by committing the most flagrant fraud ever. For the AI bubble too many people assume that large companies having a stake in it will of course know what they are doing, be careful and not expose themselves too much or do wild bets that don’t pay off. But looking at the level of capex from hyperscalers, the amount of circular financing by NVIDIA/google/microsoft, the level of debt raised for datacenters (and its associated raising interest rates), the lack of moat for AI labs, the absurd AI labs valuations, OpenAI ever increasing infra expenditure commitments (we are at more than $750B for 2030), Oracle dire situation (to say the least), the mounting pressure from China/open models, and the fact that 2 companies represent the vast, vast majority of the compute demand. None of that looks like a healthy, sustainable industry. In fact it looks like the most obvious financial engineering ever, where the only ones benefitting are NVIDIA, memory manufacturers, and hyperscalers. And they are doing what is necessary to keep the game going. If the demand for AI vendors isn’t increasing massively in the coming years the whole thing will go down. And the level of demand required need to be pretty much the AI booster dreams where everything becomes agentic everywhere. Short of that we are very likely to see things go downhill
- mannanj 2mo agowhat 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?
- metalliqaz 2mo agoLeverage is imploding the Korean market, and so it will be for the US.
- minimaltom 2mo agoSouth Korea had an extremely large population of retail investors investing in options and leveraged ETFs, to the point that 3% of the adult population has now been margin-called. That setup isnt true for the US, not even close.
- jdub 2mo agoAre you sure? What is the 401(k) exposure to "AI" related stocks and broader market shocks?
- minimaltom 2mo ago"401(k)" is a class of tax-advantaged account for retirement, theres no one global 401(k). If you are concerned, you can look at your disclosures or ask your provider. All of this is kind of beside the point though, because the issue was leverage not exposure. In south korea ppl were forced to sell at the low point of the market due to margin calls. For a retirement account, you can just choose to take a disbursement next month or next year (assuming youve managed personal cash flow with sequence of returns risk in mind).
- jdub 2mo agoIt's a question about systemic exposure, not my account (I'm Australian).
- minimaltom 2mo agoMe too / born in Sydney! A good mental model is that its like super, the kinds of things that super can invest in are equally diverse and it all depends on who you setup with Systemically i guess thats more a question of 1) is US equities just an AI trade, and 2) how much of all these investment vehicles are just such assets. Regardless of the answers, the nice thing is that unlike debt, there isnt a positive feedback loop here (i.e. margin calls increase volatility)
- cmiles8 2mo agoIt 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.
- nemothekid 2mo agoThe 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".
- qaq 2mo agoAWS made 46B profit last year and will make prob close to 70B this yea so even 400B is very far from "world ending"
- cmiles8 2mo agoAmazon is setting itself up to get bruised a bit, but it has a sufficiently diverse business and cash flow from non AI things that it will be fine. Pure play companies, startups, and investors are looking a lot less safe. For example there are other pure plays where debt service alone is like 25-30% of revenue, which is just insane numbers. There are also many investors and funds with extremely precarious positions in AI that are at risk of unraveling with a bang like we saw last week.
- lxm 2mo agoFrom the lender's standpoint they can repossess the data center. It's not like their collateral is a bunch of NFTs.
- wanda 2mo agoDo the lenders actually have the right to that collateral? What are the details in these private SPV deals? And is it collateral if it has yet to be built? (I'm asking because I want to correct my own ignorance.)
- ChrisArchitect 2mo ago[dupe] Discussion on source: https://news.ycombinator.com/item?id=48987863 https://news.ycombinator.com/item?id=48987863
- mapping365 2mo agoThe 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.
- afry1 2mo agoFiber 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.
- defgeneric 2mo agoThe "3 years" figure has been repeated endlessly and yet the same H100s are making today roughly what they did in Jan 2024...
- horticulturist 2mo agoHow long does a train track last? Does a fiber optic cable last? Both are greater than 30 years, both will persist (relatively well) without use, and the benefits of scrapping or removing them are minimal. This allowed future companies to take advantage of them. Even if GPUs running at high load last five years, if the data center they are in goes bankrupt (because the AI bubble bursts), it’s likely they’ll be stripped and sold to make way for more productive CPU-based uses and to recover some of the cost of the bankruptcy. The surrounding buildings and infrastructure will have longer use, but it doesn’t translate to a net future benefit with AI.
- tim333 2mo agoThat reminds me of saying the early Google was doomed because they put all their money into cheap pcs acting as servers - how long do those last? But the enduring value was Google dominating search which was worth billions/trillions, not the heaps of pcs. Same here - the main value is in dominating AI or something like that, not in the stack of hardware.
- buredoranna 2mo agoI 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.
- rvz 2mo agoIt 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".
- keeda 2mo agoGenuine 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?
- seizethecheese 2mo agoI 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.
- keeda 2mo agoRight, a stock market crash would be very likely given how concentrated it is on the Mag-7 (or whatever Big Tech is called now.) The reduced consumer spending due to the reduced "wealth effect" makes sense, and it could worsen the downward spiral. But it seems to me that if a stock market wipeout triggers a recession, it's because of deeper, pre-existing problems with the broader economy (inflation, jobs, war) and the stock market (concentration, unrealistic valuations) that are unrelated to the AI spending.
- rich_sasha 2mo agoThere’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.
- whosdat 2mo agoPrediction: it will last, debt will be somehow converted to "value", and everyone in US will feel that they are better off now wrt the rest of the planet, making others more and more miserable (wars, their property being taken by US capitalists, etc). Unless someone stops finally US. And even then I am not sure that it will bring good, because before drowning, they will try to take all the others with them. After all, "it's theirs"..
- tim333 2mo agoRelated in other news: >[deepmind exec] said today’s enormous AI capital expenditures are not yet supported by current revenue, but argued that betting against the long-term trajectory of the technology would be a mistake. ... he noted that “the revenues from AI don’t sustain the capital expenditures we’re making so far,” while emphasizing that the early foundations of [recursive self improvement] are already emerging. >Sekhon compared the evolution of AI to earlier industrial breakthroughs, saying, “Steam engines were used to create the next steam engine,” suggesting that today’s AI systems will increasingly be used to develop more capable successors. https://www.citybiz.co/article/883339/google-deepminds-jasjeet-sekhon-says-massive-ai-spending-is-laying-the-groundwork-for-recursive-self-improvement/ https://www.citybiz.co/article/883339/google-deepminds-jasje...