AI's debt binge can't last, hidden borrowing reaches $1.65T
AI hyperscalers are on track to issue a record $400 billion in bonds this year, but hidden debts—off-balance-sheet commitments like GPU purchase deals and data center leases—have exploded to $1.65 trillion, exceeding their on-balance-sheet debt. S&P warns that market participants are growing leery of rapidly rising leverage, while Moody's flags $1.2 trillion in debt-equivalent liabilities. The shift from asset-light to asset-heavy models requires unprecedented capital, and the rivers of capital may not flow as freely forever.
Market participants are growing leery of quickly rising leverage from issuers previously characterized by strong and reliable cash flow.
- missedthecue
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.
- mapping365
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.
- bobanrocky
Hopefully the general public doesn’t get stuck with the ‘too big to fail’ bill .. again :(
- bravetraveler
For those without accounts, given faded body
- keeda
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?
- seizethecheese
> 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".
- buredoranna
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.
- cmiles8
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.