The AI Trade Runs on Borrowed Money as Lenders Reprice Risk
The AI trade now runs on borrowed money, and the lenders are repricing it
AI capital spending is increasingly funded by debt as major tech firms like Amazon, Google, and Microsoft face rising borrowing costs. While the market continues to absorb record issuance, investor demand is weakening, forcing companies to offer higher yields. This trend signals a costly credit expansion rather than an immediate contraction, yet the thinning equity risk premium suggests growing tension between expensive valuations and the mounting cost of capital.
What separates an expansion from a contraction is not the level of spreads but whether new issuance keeps clearing.
- klodolph
A 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.
- defactor
Warren 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
- okzgn
Key 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... (Goldman Sachs)
- AI’s $600 Billion Question: https://sequoiacap.com/article/ais-600b-question/ (Sequoia Capital)
- The Simple Macroeconomics of AI: https://www.nber.org/system/files/working_papers/w32487/w324... (MIT / Daron Acemoglu)
- blitzar
The headline and the link have nothing to do with each other.
- raincole
Am 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)?
- carlsborg
Make the most of your heavily subsidised $20 / $200 subscriptions while the credit spreads allow it.
- tyre
> 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.
- ww520
Speaking of AI stock, what has happened to NOK?