> Risks to financial stability may also stem from entities with particularly high exposure to private credit markets, such as insurers influenced by private equity firms and certain groups of pension funds. The assets of private‐equity‐controlled insurers have grown significantly in recent years, with these entities owning significantly more exposure to less‐liquid investments than other insurers
https://www.imf.org/-/media/files/publications/gfsr/2024/apr...
https://www.imf.org/-/media/files/publications/gfsr/2024/apr...
At this point these companies make up a huge portion of 401k's for a huge chunk of Americans. How would it affect retirees if they dropped 40-50%, likely taking the market with them?
Personally, I drop the financial sector entirely (Thomistic prohibitions on usury) which leaves an even 10 funds which is easy to allocate mentally and in practice. For example, assuming a 60/40 allocation where one is holding the lion’s share in equities and the remainder in bonds (I substitute with a combination of gold, crypto, cash, and Swiss Franc here), one would allocate as follows:
XLC 6% XLY 6% XLP 6% XLE 6% XLV 6% XLI 6% XLB 6% XLK 6% XLU 6% XLRE 6%
(Note that XLF is consciously not taken as a position here, decide if it’s right for you. The Mortgate REITs which would make XLRE problematic are in XLF per the sector selection rules)
The remaining 40% is bonded debt if you are fine with usury, or some sort of asset negatively or neutrally correlated to equities.
Already happened: https://finance.yahoo.com/markets/stocks/articles/michael-bu...
Debt is senior to equity. For private credit to start taking haircuts, the equity has to have already gone to zero. At that point, this will already have been everyone's problem for some time.
Equity is a risky asset, so equity being wiped out should not be a surprise to anyone, but life insurance and pension funds failures is indeed a public problem.
Three things:
1) at least SpaceX is already in pension funds "thanks" to NASDAQ and MSCI relaxing their rules. Everyone who invests in NASDAQ or in MSCI World has SpaceX exposure, and assuming the bonanza lasts for 11 more months, so will everyone who invests into S&P 500. In addition NVIDIA, Google, Microsoft, Oracle and Amazon all have been in pretty much every investor's / pension fund depots. No matter what, everyone is going to get fucked when the party crashes, and it will make 2007 look harmless by comparison.
2) The debt of the AI companies is bad enough, but there's all the downstream credit as well, chiefly construction companies and public utilities that are undertaking absurd amounts of buildout. When the party crashes and the demand stops, there will be a lot of construction companies and possibly even a few large utility companies that will be unable to service their debt (because no datacenter means no income) or have to hike rates even more than they already are.
3) All this debt and speculation unwinding will cause an economic downturn. Most of Europe already is in or near recession territory, and the US would be in a recession if it weren't for the wash trading and circular investments artificially propping up the GDP. But unfortunately, with the exception of infamously austere Germany, everyone else has already fired all the guns during 2007ff and Covid, and all the ZIRP money never got slowly deflated out of the market, which means this time there will be no government help possible, it will be a hard crash. No way out of that one.
I think for small to even large numbers you are correct, but given how yuge this debt amount is a broad-based default will probably cause a contagion. I will not predict how far and wide.
if say meta owes 720Bn, they wouldn't have trouble paying that back in 10 years.
this doesn't take away the fact that 'a.i' right now is a bubble.
In many other industries that would be a perfectly normal amount of debt to have. It's only unusual because we are used to tech companies having so much cash on hand they don't know where to put it
If 50 billion in revenue is from other companies debt spending… then You have a problem.
Estimates are that this could overstate profits by tens of percent. (However, this only allows earnings to be "pulled forward" - sooner or later the servers must be written off and the accounting catches up.)
See e.g. https://deepquarry.substack.com/p/depreciation-of-gpus-betwe...
https://www.ft.com/content/0dbfe94f-2136-432c-b075-4587092de...
Michael “The Big Short” Burry:
> Understating depreciation by extending useful life of assets artificially boosts earnings -one of the more common frauds of the modern era.
Isn't this an existential type of bet?
The real problem will be figuring out where all this debt is
If you're truly at retirement, absolutely cycle out. But if you're still young and trying to maximize portfolio growth, it's not obvious that a non-tech strategy would yield better returns.
Usually I applaud optimism, but the current approach in the USA will probably adversely affect most non-rich people, and I would like to see more public well grounded in reality pessimism.
It's a huge gamble.
The plan is to have LLM working completely autonomously, in that case, the more resources you have, the better. Perhaps people will use local LLM to ask questions, or coders use them for their personal projects, but that's not where the real money is.
After the opening paragraphs about the accounting practices of meta, Microsoft, alphabet, etc - which, it should be noted are not “houses of cards” and earn plenty of money - the article quietly transitions to
> Experts continue to warn of an AI bubble, noting the enormous and widening gulf between company valuations and their comparatively measly profits.
I think hoping people will apply the “house of cards” logic by that analyst they quoted to the startups, when instead the analyst was talking about the megacorps’ accounting.
Long term, I think the best thing the economy could do is to make training on model outputs fair-use, as suggested by Ben Thompson[1]. Short of that, the companies should enter into distillation agreements with other US labs to let them make near-Fable models.
As it stands now, the companies want to hold all the upside. While also being culturally so safety focused - "only we have the right to regulate this" that its IMO counterproductive to US leadership in AI.
A different universe where X.ai, Meta, and everyone were also building Fable competitive open weights models - because they can distill - would probably be better for the US long term. But there's too much capital on the line right now behind OpenAI / Anthropic for them to do this.
They're really in a bind IMO.
1 - http://stratechery.com/2026/whos-afraid-of-chinese-models/
Meta, Google, Amazon, .. they can take the hit and go on.
See here https://news.ycombinator.com/item?id=49027426
Your lease agreement with your landlord isn't debt (though if you don't pay it, you will get a hit on your credit report)
> Companies disclose such future debt not in their balance sheets, but in annotations to their quarterly financial statements. This is a legitimate practice under accounting rules, but may make it difficult for retail investors to recognize risks.
Does that justify a "tries to hide" headline?
This is also one of those cases where the headline is free but the details are behind a paywall.
I do think the story itself is notable, but I expect the discussion is going to lack some nuance.
Recently watched Enron: The Smartest Guys in the Room. I still don't know how Enron made money which remarkably seems like it was also true at the time.
https://www.change.org/p/create-a-physical-embodiment-for-cl...
[1] I don't use Gemini for anything ever, I pay just to put my vote to them making a useful model (I know my $20 isn't much but I apply Kant'e categorical imperative - if everyone did it they'd take their AI seriously and not be in last place behind OpenAI, Anthropic, and even open-weight models).
https://asia.nikkei.com/business/technology/five-us-tech-gia...
Simply choosing not to get involved might be most reasonable action.
Now i'm starting to get scared - these cash positions are basically gone if matched against the new debt and various creative financing taken on for the AI buildouts. That looks a lot like 2000 - very promising tech everybody is piling money in. And i'm sure that several years later it will provide several decades of tremendous success like Internet did in the last 20 years. It is just those few initial choppy years of the hockey stick trough that we may be coming upon and that many may not survive not having that fat cash position anymore, and thus those years may happen to be very painful for the tech and for the whole economy.
25 years ago there were a lot (estimates put even as high as 95%) of dark fiber left as a result of the dotcom buildout and crash. It was successfully put back into action several years later. I wonder whether we will have similar dark datacenters in a few years.
A predictable reset schedule with refinancing ("valuations"). Loose money leading to debt obligations to be paid in the future. Circular financing.
And what's funny, is it's precisely the off-book debt that will make the compression happen slowly. There's no bailouts this time.
A Bear Sterns moment would be more solid. Oracle might ge the first to collapse if things go south, so we might be fine until then(?).
If they continue investing in compute, memory, memory bandwidth, network infrastructure, etc. it makes a relevant contribution of progress in all of these fields which I will leverage.
A small form factor PC with 100gb fast memory and being able to run something like sonnet or opus level LLM would be massive.
I have so many things i want to do and still sitting it out due to cost.
[deleted]
[deleted]
[dead]
Why?
"Because it isn't; okay?!"
oh ok.
[dead]
[dead]
[dead]
[dead]
bailout incoming
will make subprime crash seem like child's play
sure you won't be able to ever afford a home but we'll have tons of cheap super-hardware barely used
[deleted]
> To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice.
https://www.newadvent.org/summa/3078.htm
…Aquinas expands the analysis but it is relatively straightforward: all interest is usury.
Personally, I find it helpful to imagine two hypothetical persons representing the entire economy, one the creditor who is lending and two the borrower who is taking on the loan. In this ultra simple closed model with a fixed quantity of money, the former is in effect asking for more units of money than actually exist in the whole system. When the loan comes due the borrower owes a sum that cannot be paid in full from the circulating medium itself. Settlement then requires either default, the creditor forgiving the excess, or the transfer of real goods and property to make up the difference. Scaled up, that same pressure (the continuous generation of monetary claims that exceed the existing stock of money) is what I suspect drives a good deal of the subtle and overt strain on families and communities that people so often complain of in the West and in modern growth-oriented capital societies.
This definition of usury differs from the modern loophole-definition: that interest bearing loans are only usury when the rates cross some nebulous abusive threshold. In the above Thomistic interpretation, all interest is socially problematic and disfavored. Judaism holds to a similar prohibition on interest when loans are made between Jews. Islam likewise prohibit usury even more broadly. Despite the injunction against usury in the Middle Ages Christendom and the enduring prohibitions of usury in other faiths, there are many modern Catholics and Protestants who will favor the modern interpretation over Thomas’ understanding; I’m just not one of them.
Depends on how you define the 'whole system'. If I borrow $100 and make $110, the latter didn't appear out of nowhere. The lender, too, could have turned that $100 into $110.
Why shouldn't they be compensated for that opportunity cost?
Jump in a time machine to 1515 and ask Martin Luther, or to 1260 and ask Thomas Aquinas, they'd tell you it's sinful.
And in the present age, a fair number of Islamic folk consider interest against their religion's rules. So there's a Halal finance industry where, for example, you can get a "murabahah contract" where the bank buys a house, then sells the house to you at a higher price, while allowing you to pay them in monthly instalments.
I suppose it’s worse if your calculation is, “I’ll retire when my 401k hits $X absolute value,” but I think most people just retire at a certain age instead with risk spread across decades.
In other words, a programmer should invest a bit more away from software than average, a realtor should invest a bit more away from properties than average, a coal-miner should invest a bit more away from energy and mining, etc.
If you have your job, you can weather a stock-downturn, and if investments are solid, you can weather a period of unemployment by liquidating some, but if both hit trouble simultaneously then that's much much worse.
It created an actual recession albeit thankfully short one for the case of dotcom (sadly not for 2007) and a really recessionary environment which causes unemployment and just straight up fear and panic.
I do understand what you are talking about and overall in long term, perhaps things flatten out but atleast speaking financially so, its better to be on a smooth sailing road rather than insane ups and downs with retirement money if preferable.
> I think most people just retire at a certain age instead with risk spread across decades.
The issue in my opinion is with people near that certain age you mention and who retire in the time during boom just before bust. They would then get the 50% hit on their savings instantly with an recession/inflation/unemployment environment which in my opinion might be genuinely devastating.
(supposing that they had their investments in stocks, I wouldn't consider that any retiree would have all their money in stocks but there have been some other comments which show a sizable amount, @kipchak's comment shows 50% stock for retirement. so a 50% shock on top of that could lead to a wipe out of 25% of your retirement fund which is honestly still pretty crazy.)
As the boomers die off - if they have these accounts - their kids are quickly going to be forced to liquidate them over the course of 10 years. With some of them having to sell a chunk annually.
Still, if NVidia lost 50% of their market share, we would probably see a big collapse of the stock market.
EDIT: to note, the top ten companies in SP500 make up an unprecedented concentration but they're not "mostly AI".
This is what caused the 08' crash. Everything was all tied together so as one massive bank failed it sent a cascading ripple effect through the entire industry which became a sort of black hole that took down many seemingly stable, profitable banks with it.
I can easily see the same happening with AI.
They're mostly either AI proper, or hardware manufacturers benefitting from AI boom, or provide cloud services to AI companies...
It wasn't like, "Nvidia took a hit and everyone else was fine". It was more like, "One or two companies were fine, and ALL others took a hit"
Do you think iphones and windows™ will stop selling once the ai bubble pops?
For the people who are close/early to retirement and can't do that, well, they need to manage sequence of returns risk.
Edit: I think some ppl might interpret this as me being bullish on the SP500. I'm not, I'm bullish on everything evens out and returns to the mean.
https://investor.vanguard.com/investment-products/etfs/profi...
a drop of 40-50% in the S&P 500!? That didn't even happen in the market crash of 1929. It would lead to unemployment and breadlines for the majority of the population, and retirees would get in line like everybody else. Making income from your savings requires a productive economy; bonds are not the answer because bonds also stop getting paid, and even govt bonds would be erased by inflation.
it's just not a scenario that should be on your radar, the chance is tiny, and the result would be completely non-linear. if you tried to hedge yourself against that, not only would you fail (it's simply out of your control, like an earthquake or tornado), you also wouldn't make any income in good times, and most times are good and it's sensible to plan for that retirement.
The COVID crash nearly hit those levels also
https://workplace.vanguard.com/content/dam/inst/iig-transfor... (page 78)
No correlation with future returns.
On the other hand the world is leveraged to insane levels not seen since world wars or global recessions.
At the same time yields are low while inflation is high.
There is definitely a high level of risk in the financial markets.
A risk nobody, especially politicians, want to look at, because it would unavoidably lead to some major pains, so procrastinating until it's unavoidable seems the way to go.
If one is over concentrated its easily avoided.
The sound advice for the past decades has been, just invest in a low-cost ETF tracking the S&P instead of picking stocks to minimize risk and invest in the market broadly.
So a huge number of people have done that, believing they're diversified, while tech makes up 40% of the index.
Yes you could sell your S&P and find things to invest in least likely to be impacted by a potential bubble, but your average 9-5'er with automated contributions to their 401k is probably not sophisticated enough to do that.
And that's assuming only these companies would be affected if there was a massive draw-down in tech/AI related stocks. We haven't really seen a situation like this before, so it's not easy to predict what effects there might be in the broader economy.
Most people in actual retirement I know do something like keep ~2 years of cash in short-term treasuries and everything else in equities. That gives you a lot of buffer to time-shift equity drawdown, which is the main risk with equities, while retaining almost all of the benefit of equities. Simple and relatively robust.
Usually the financial services company will offer several options: more aggressive/high risk, or less aggressive/lower risk. Most people will just go with whatever is the default option.
So much of the American S&P 500 is dominated by handful of companies that the risk is not that easy to avoid. If or when the AI bubble pops, it's going to take down a lot of the economy with it. You can direct your retirement savings into the lowest yield/lowest risk assets offered by the firm, but you'll forego whatever growth happens in the mean time.
Will the bubble pop next week? Next month? Next year? Who knows. Timing the market is incredibly difficult.
There's a famous quote, attributed (perhaps apocryphally) to John Maynard Keynes: "The market can remain irrational longer than you can remain solvent."
In the real world, recovery rates for corporate bonds are between 30% to 70% or so, depending on the seniority of the debt and the collateral.
Uh, no? Ignoring the rating, I think there are plenty of other bonds to be found that are less risky.
Dutch government bonds just to name one? The yield wont be the same but that's probably a good indicator?
If a person has a lot of debt and no savings, and they lose their job, then they will find themselves in trouble a lot faster than someone who owns their home and car and has 6 months in a savings account.
If a company has a lot of debt, they might find themselves in trouble with credit rating agencies as soon as they have a bad quarter. Or they might have cashflow issues if rates increase. Both of these can lead to an accelerating negative feedback loop.
Governments (at least those with fiscal independence) have a unique set of tools to work around this situation, but they too can struggle with high debt loads acting as a drag on future prosperity.
Debt plays a critical societal role in allowing new production in advance of revenues, but it can also be a dangerous trap.
These AI and tech companies are priced as if they are still running a capital-light, 0-marginal-cost SaaS business. That's no longer what's happening. This economic engine makes up a substantial amount of both the value and the growth in the American stock market.
If there's a loss in confidence, high leverage will make things fall faster. This could be infectious. Not just the AI and tech companies, but the whole market might suffer.
we may have a problem then.
These companies have valuations reflecting a debt light business.
All other things being equal, debt is a downward force on that perception.
That is a general point, although I'll stipulate it isn't a factor in AI picks because they are approximately all doing the same and because the market is giddy with FOMO. More strongly, i believe that some Schmanthropic with equivalent offering and unit cost and userbase but with sustainable finance would signal, through lack of recklessness, that it is not "going to the moon". I'm willing to call this "irrationality". But hey, I'm not exposed, other than being a taxpayer with savings who will inevitably foot the bill for the bailouts.
Sorry, but this doesn’t make sense. The valuations of these companies reflect their growth.
In finance there’s nothing inherently virtuous about a “debt-light business”. It’s all an allocation decision based on how you expect to grow relative the cost of that growth.
Try and reframe it: are cash-heavy businesses given a premium?
>Experts continue to warn of an AI bubble, noting the enormous and widening gulf between company valuations and their comparatively measly profits
By the time we're reading headlines about this debt, it has been known to institutional investors for a long time.
The debt is priced into the valuation.
1. It's widely known that Spacex is overvalued. How is it possible for it to be widely known, and yet still overvalued? Either it is fairly valued, or these issues are _not_ already priced in.
2. If people read Enron's filings, they could have been aware of the shady reporting, and should have seen the reduction in price coming. But clearly most did not! Enron persisted for a long time despite shady tactics, that essentially were happening "in the open" if you dug into the paperwork.
3. The same argument can be made about housing loans during 2008, the dot com boom in 2000, and the response to covid in 2020
If you're interested I have much more to say on the topic! It's fascinating and I've only recently been convinced that the efficient market hypothesis is untrue (or at least it is suspect). I also highly recommend any of patrick boyle's videos, he makes great content often touching on this topic.
disclaimer: I'm not an expert in this industry, or really in this industry at all. I just like learning about it.
That's a fun way to say is not profitable and loses billions a year
But the pendulum swinging rapidly to the other side has routed all those funds through the real economy, caused goods inflation, and looks like it will crash the economy.
With tech it's weird because something that is worth nothing on an accounting sheet could be worth a hundred billion dollars during a sale to Alphabet or Meta.
Take the circular money and add even more spend, even less profit, and somewhere in the background is a money tree that is about to die.
This is all like CFO 101 type stuff, and not nefarious. I find it amusing that people assume the worst for things they understand little about, rather than trying to learn.
Maybe the best way I can explain it to the programming crowd is this: imagine how ridiculous it would sound if outsiders were saying that Google was on the verge of collapse because its codebase has billions of lines of code.
I don't know if you intended this to be exclusive of the opposite, but I do often find actually the opposite thing is true. That is people tend to be wildly, inappropriately optimistic for things they don't understand well and more likely to be skeptical in the details of things they do.
Agreed, there are many valid reasons to have subsidiaries of course.
The issue is rather with the fact that we are having the assumption that the threat is outside rather than inside and so systems with mechanisms to be less transparent are far more prone to this risk.
It has been academically shown that most corporate/ white paper scams aren't done from outside but rather from inside the company itself through genuine structures and incentives which go wild. (Something shockingly visible in AI space), Enron's example also comes to my mind.
The best way I can explain it to the programming crowd is this: Imagine how ridiculous it would sound if you are ranked with how many lines of code you ship and how much token you would spend and so we end up with tokenmaxxing and hearing stories about people literally burning tokens in innovative ways because they want to get on top of a leaderboard. Oh wait, it is already happening or has happened.
Generally speaking, It is preferable to be transparent with debt and other things rather than not especially so for long term because sooner rather than later you might get caught. Obviously if there is some stuff which prefers from ringfencing risk then sure.
Also as I spoke of Enron, but the exact structure was used by Enron as well as @fzeroracer discusses in their comment[0] so it might be a genuine question.
They aren't hiding it though. The contracts are recorded in regular filings.
https://asia.nikkei.com/business/technology/five-us-tech-gia...
"Companies disclose such future debt not in their balance sheets, but in annotations to their quarterly financial statements. This is a legitimate practice under accounting rules, but may make it difficult for retail investors to recognize risks."
"Today's AI industry is partly supported by demand generated by circular investment. Nvidia and tech giants invest in data center operators and AI companies, with that money then turning into GPU and cloud usage fees. Actual demand is difficult to see, increasing the likelihood of over investment in data centers."
[dead]
If I make $200k I do not have $400k off-balance gambling debt
ohh, their accountants just dont know where debt goes on the balance sheet. thanks for clearing it up
[dead]
Now, that’s not to say that there aren’t other benefits of having a separate balance sheet related to moving numbers around. But it doesn’t have to be nefarious.
My concern is that the subprime mortgages were not perceptible to even savvy fund managers, and the same thing could happen again; and also, even if that insidious risk-poisoning of institutional funds does not occur, them a collapsing bubble still fucks us all into recession.
In the run-up to 2008 a big factor in the bubble forming was that poor quality loans were packaged in a way to hide the risk in those investments. I'm not expert enough in finance to know if it's the case now, but we do know that clever accounting to hide debt can lead to the incorrect valuation of assets, potentially leading to financial ruin.
An analogy that comes to mind is when companies used to book future sales in the present. They got in trouble for this and is now forbidden. I recall reading that one deal had terms that transferred assets if certain conditions were not met. If terms-based debt should be booked now, then terms-based assets should as well. This stuff makes my head hurt.
Either way, as long as it's not hidden (and it's not for the public companies), then it's fine.
[dead]
[dead]
Couldn't you characterize Enron that way? The liabilities are there, you "just" have to look at Raptor II or whatever!
[deleted]
[dead]
And yet... the companies do this because it works. If they held this debt on balance sheet, the sensible assumption is that their stock values would take a rather substantial hit, and they could face other sorts of scrutiny. It works like pull-in sales works. It works like channel stuffing works. It works even when everybody knows that's what's happening. It works even when everybody knows that everybody knows that's what's happening.
There's something broken here. In an era where AIs move millions upon millions of dollars around because of some blip of a headline somewhere and every AI improvement of any kind is immediately scrutinized for its ability to be used by the financial system, it is completely incredible that the system doesn't know and react to these things. I'm not sure what's broken. My first best guess would be the increasingly mindless investment via index funds in pensions and the slow-but-ever-increasing ability of financial engineering to abuse that mindless investment, but I call that a "guess" for a reason. Possibly there's still a lot of really stupid AIs hooked up to the stock market that just look at the most basic of numbers and are easily fooled by this? But who is running such a precise combination of "huge" and "stupid" on the market? I dunno. Something's weird here.
I think there is some sort of collective collusion. Like a school of fish moving. If there is an external stimuli the price can rise or fall eventhough it doesn't make sense from a 10y dividend perspective.
Until it doesn't. I'm not only old enough to remember Enron, I'm old enough to remember the S&Ls.
And even if you look at the debt, even companies like meta make 200 billion revenue in 2025 alone.
Isn't it good that these companies with these massive massive deep pockets invest?
If anything those GPUs should not be marked down at all.
Burry is wrong.
Pretty much Buzzfeed level doomscroll slop
but now the story is different. while the effects of ai on other industries and classes may be unpredictable, (a) the tendency toward ai itself (the market demand for economically useful intelligence) seems plausibly more inevitable than any tendency in the history of capitalism (certainly more inevitable than any in the history of these big tech companies) and (b) the technical scaling laws have been eerily steady (intelligence as log of compute). taken together, (a) and (b) make it much easier to finance than anything meta or google or microsoft have ever worked on. there are risks, but there is at least also a model, a projection; that model did not formerly exist, for these companies. anything outside their core business was literally a guess.
the upshot of these stabilizing patterns is that the industry is in a certain sense just maturing. that is, its financial profile is starting to look more like other mature industries that are mostly juggling around known quantities to try to get a small edge that they can, with financial leverage, magnify enough to M&A the competition away and thereby secure the only relief possible in a well-delineated, well-populated niche: monopoly by scale/consolidation rather than by differentiation. (which is not to say that these mature industries are less competitive! they are actually more competitive; the intensity of the competition is what drives the "anti-competitive" behavior.)
[deleted]
Don't try to be too smart. Especially if this is not your full time job. The market is not rational. Dollar cost averaging and proper risk allocation is the way.
[1]https://www.hartfordfunds.com/practice-management/client-con... & https://www.fidelity.com/learning-center/wealth-management-i... (if you prefer an additional source)
But counterpoint, the S&P 100 gained over 24% this year. FTSE gained nearly 18%. Still good gains vs inflation!
If the companies don't see that kind of value (so LLMs don't become dramatically better in some kind of quantum leap from where they are now), they won't want to pay those costs. Already, most AI projects in corporations tend to fail.
If the efficiency of LLMs gets 10x better, then either corporations will "private cloud" their own AI or start using competitors that aren't carrying those kinds of debt loads from the "gold rush" phase.
Apple's own desktops, with the fastest Apple Silicon GPUs and TDPs 20x higher than an iPhone still can't compete for real-world datacenter use even with RDNA clustering. Apple's GPGPU architecture is behind AMD at this point, there's a reason why Apple Intelligence is critically reliant on Nvidia and Google to provide inference backends.
Very much unlike with software. Where the goal for long while is to burn as many resources as possible on end user devices.
[dead]
Your real personal agent which knows you and helps you like "good morning elmer2, your calendar invite for dinner is today, you will need to leave at 18:18 if you want to use your normal public transport route per train. I put an alarm in your phone for you"
Agents to agents
Agentic teams.
Finetuned models for everything like Java/spanish coding model.
Very long term research like multiply hours or days or weeks and plenty of these in parallel.
What they can't do is the rug pull of pricing like Fable did, hoping for profitability while playing the "it's so super smart" card. It's very profitable, but customer will be very happy to leave for cheaper pasture and that's why the recent news about this or that cheaper chinese models make headlines.
Essentially, the rush now is "if I make it a boring profitable company I'm not worth a trillion AND i'm overshadowed that plays the singularity card even if they're bullshitting"
I'm not saying I see them going that way or that I would, but at least THAT would possibly work.
Even better, that "gamble" will have to be rescued by taxpayer money.
[dead]
[dead]
AI outputs have been ruled as not even copyrightable, isn't that even better than fair use?
I don't treat it as a reliable publication when it comes to anything AI related.
It really doesn't need your help, and it's already way too powerful. If you have money to spare, can't you give to good causes instead?
If there is really only a few dozen people doing the buying and the selling at the top on a weighted basis, then the prices are whatever they convince themselves of.
"Big Tech" as a pejorative started on the Right. That never changed.
Remember the hubbub about companies having "free speech" while they deplatformed and censored critics? That never sat well with a certain group of people. And they're the kind of people with long memories, that might have guests entertained as a visible sign of submission, and not as friends.
The more interesting revelation will be if certain persons can psychologically come to admit the people they are against are politically aligned with them, and their opponents are more intelligent than they are willing to let on.
Truth be told ORCL already kinda went south: they're down 65%, at $120, compared to their all-time high.
I don't see how this will benefit the consumer, but I might be missing some second order effect?
I want to hope that this money will lead to more capacity, more R&D and lower prices in the long term again.
Nvidia would have changed its GPU strategy a long time ago if the demand wouldn't be real. They still can afford the GPU prices. But memory is not a monopoly.
For memory though i do assume a lot more people and companies want a massive amount more memory than ever before. I have 64gb in my pc for a few years now, i was quite happy with that. It became a no brainer. But today? Hey give me 100, 300 and even more. I really want to run bigger LLM models locally.
For the moment.
There are several ways that ordinary investors and even simple pension holders could end up stuck with the downside of this.
The debt risk hidden in CDOs wasn't your debt either but if you had a pension plan, the crisis absolutely cost you money you would have earned, and in many cases pension fund values dropped by five to ten per cent within a year.
The SPV/CDO comparison being made is by no means exact, but hidden debt at this scale surprising analysts tends to cause problems. If more institutions are severely exposed than anyone thought, it is bad.
Especially since any success strategy is predicated on literally unbelievably rosy predictions.
all three major remaining players in the mem sector have already tried in the past to collude for memory price fixing.
this is the first time I'm rooting for chinese chip tech to reach more or less parity.
10 years ago i watched a talk about the problem of compute vs. memory. Compute increased significantly while memory speed did not.
This gigantic investment will solve this problem.
So either this blows and we will have way too much capacity which will lead to cheap and mass amount of memory for everyone + cheap GPUs again OR AGI. So win - win.
Neither was AIG's, until we all woke up one day and suddenly it was
Your view seems very myopic.
AFAIK they have heavily relaxed the rules for IPO. Pension funds are practically forced to buy from the top-100 companies, and these companies risk crashing much more than the others.
SpaceX value is already lower than at launch. If this costs are externalized to the common public, this will be your debt.
All these companies are too big to fail, in an environment where you can buy pardons and laws.
Hell, a 3T$ crash will have global repercussion and probably partially crash many other countries, too.
I don't know how specifically significant SpaceX being lower than at launch is, because actually most IPOs underperform the market and their own targets for the first three to five years. What is happening to it is not that unusual; its overvaluation is.
I do think there is a major risk here, and ordinary investors and pension holders will be hurt.
I am not sure any individual AI company is too big to fail, though probably one of the big two will be rescued, most likely Anthropic. I think OpenAI will fail, and it'll be stripped for parts. As will Oracle, who are overexposed to it.
How much real impact is this really though?
But minimal real impact
If Meta put every cent towards their debt, it would take at least 6 years, assuming 0 interest and 0 new debt. The interest alone in the next 5-10 years likely would push it close to 1T debt.
How on earth are they meant to pay for this?
I suspect the deeper difficulty is the “bond” in bonds themselves, the ongoing compulsion that interest introduces. Once interest is attached the debtor is under continuous obligation to produce additional claims simply to keep the accounts from breaking. Traditional writers on the Christian and Islamic sides generally preferred arrangements that avoided this continuous pressure. A pure discount (as with discounted Treasury bills and similar instruments) prices the time element once, up front: the creditor advances a smaller sum and later receives the larger face amount. The cost is paid at the beginning rather than levied as a recurring claim that must be met out of future circulation. In that sense the time value is acknowledged without the mechanism that forces the system to keep generating more monetary units than presently exist.
[edit:] Clarified the discount language.
But then eventually, if the system were sufficiently complex, I'd probably tire of whatever complicated barter system we have already going on, and then it's likely some third party would step in offering something that's totally not money, dude, trust me, it's just like a handy clearinghouse of IOUs for people engaged in the trade of these non-monetary favors for favors...
Some people who hold or offer such IOUs might then take the bold step of calling them non-exclusive, as in I will mow the lawn of whoever happens to have my "one lawn mowed" voucher, I just happened to originally give it to this first guy, I have no idea what he did with it after that... Other people realize this "non exclusivity" deal actually makes the voucher strictly more valuable, you can do more things with it than you could otherwise... You see where I'm going with this. It's not passing my sniff test.
I agree that charging interest on a full-recourse loan is a wicked and disgusting thing to do to one's fellow man, and I'd say it's in the same genus as slavery. Usury is to fraud what robbery is to larceny. It's also interesting that the markets where usury is most prevalent (housing, college fees) are the ones that have seen the most insane price increases.
Usury usually means ruinously high interest rates, not all lending.
Unless you’re Muslim, generally.
"Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest" (Deut 23.20 JPS Tanakh).
So I guess in this case if the house burns down and the insurance only pays 50% of the agreed value then the lender only receives 50% of their agreed repayment.
I'm mostly thinking of folks that will passively invest in a big broad index fund, and then assume they've reached the end in terms of balancing industry/sector risk.
Oh, sure, it's way worse because of the fraud-angle, but even if it had just been a more honest kind of mania, the arrangement was reckless and bad.
give somebody $1000 worth of shares in their company, and a lot of folks will hang on to them. but if you gave them $1000 cash to invest, they almost certainly would not choose to dump all of that money into their own company.
In contrast, starting with Money and then choosing between StockX or StockY is an easier choice.
Presumably this is their total net worth. I think this is way more common than people on this type of forum realize. Most will work until they literally can't anymore, then scrape by on social security until they die. I think it's important to keep that perspective.
1x is plenty IMO.
No person puts all of their retirement savings into QQQ or SPY at the peak and sell it off at the trough. Instead folks drip their savings into their weighted portfolio and withdraw money from their weighted portfolio as expenses accrue. Now obviously the GFC was a huge deal, but this sort of facile understanding of stock markets always leads to big misunderstandings. There's a reason Monte Carlo analyses of these events are used to model these scenarios.
(Though I imagine there were many people who tried to re-balance their portfolio into a less equity-heavy model abruptly during the GFC and based on equities performance at the time, it was probably the right move as long as taxes were taken into account.)
What do you think the cost would be for protective puts per $1M of equity exposure of a portfolio on a monthly basis? "Bubble Insurance" if you will. Going 100% bonds is simply intolerable for the time window for most retirees, but an equity wipeout of this magnitude is equally intolerable.
For example, you could have an S&P 500 fund that, over the next year, will have a maximum of 0% capital losses (it can't go down), you will only get the first, say, 5% of gains that the equity index makes. So if stocks go up 20% the next year, your return is capped at 5%, but if they crash 50%, you don't absorb any capital losses. In practice, the return cap is going to be just a bit above the corresponding Treasury bill for the same duration.
These can be constructed in various different ways and institutionally I'm sure there are more bespoke ways that are more efficient from a fees/returns and tax perspective, but one way to do this on your own without going the ETF route is:
- Pick an amount you'd like to invest. - Buy a Treasury bill for some duration. Treasury bills are discounted at the time of purchase and return the target amount when the bill matures. For instance, if you buy a $100k 1-year Treasury bill, it might cost $96.5k today. - Now you have $3.5k in your pocket and a guarantee that you'll get $100k in a year when the bill matures. Use that $3.5k now to purchase call options or vertical spreads on the S&P 500 index to capture the upside that you can. Your return is limited by the structure of that options trade and what its maximum payoff is.
If you're willing to accept more than 0% downside, then you can achieve a higher potential upside cap as well.
It is worth saying however that part of tail hedging is that the payoff is worth a lot more when everything else has tanked, so e.g. even if you (say) get 10% on your puts when the wider portfolio is still down 40% (made up numbers), you can deploy that capital at probably quite a high expected return.
You can use a collar for this at somewhat reasonable cost. Not sure how rolling that would compare to just using it to defer until you can cheaply sell and buy some fixed income ladder. Probably badly.
Also, there’s no capital gains to defer if you use a retirement account, which will be a better place for fixed income anyway.
I expect that would not be a cost-effective way of attaining the risk profile you'd be looking for.
I expect there won't be a more cost-effective way of managing your portfolio risk than by simply adjusting your split of broadly-diversified equities vs bonds.
That was the message that I got from a financial podcast I listened to a couple weeks ago anyway.
Investment companies have to remain profitable or at-worst neutral as such they would generally charge a decent bit of money for this type of setup. (If they end up having too big of losses then perhaps it could be similar to the the 2007 Banking/Investment companies crisis.)
Generally speaking I am not a financial advisor but you can take a look at international index funds/ETF's in general which have less exposure to AI in general.
and you can follow the age rule created by Mr Bogle where you have (age)% in bonds and (100-age)% in stocks, so at 70 you have 70% bonds, 30% stocks.
So again taking the example of dot com bubble, International Index funds fell from my understanding 30-40% and suppose that you had 30% stocks and 70% bonds.
So that would only have a 30% times 30 % which is 9% which perhaps might be more managable as compared to the previous 25%. There might be some other strategies as well which can help in diversification
Hope this helps!
SPY260821P00738000 (OCC symbol: PUT on SPY expiring the 21th of August 2026 at a strike of $738) is $12.20 as I type this, so $1220 per lot. So $16 800 to protect for a month. So $200 K per year.
A solid 20% yearly, unless my math is way off.
Now of course you can buy, instead of a PUT, a PUT debit spread, or you can buy further from the strike, or you can finance or partially finance your PUT or PUT debit spread with a CALL you'd sell (turning it into a covered strangle) etc. That's not the point of this exercise though. And anyway I doubt many retirees have the know-how to do that.
In any case it's well known that the costs to hedge are extremely high.
In 1929 those who had 10% gold for example "only" lost 25% overall: gold has value since thousands of years. My dumb thinking is that if gold has value since thousands of years, there's an extremely high probability that it'll keep value for the few decades I've got left at most.
Plus apparently at least for Google, but from other news sources I've seen, at least Amazon and Oracle have basically mortgaged their future in other business units to fund AI, so it's likely many of these other business units will underperform (or already are).
So lots of new debt, unverifiable growth that could be shady, coupled with a slow down of their other businesses could be a really bad combo.
This is pretty close to current concentration, but the current top 10% is basically all technology except for Eli Lily at 1.5%, so in that sense it's arguably unprecedented.
There's a good chart here on page 5 of top 10 weights over time, and on 6 of how the 1965 top 10 fared to 2025.
https://corporate.vanguard.com/content/dam/corp/research/pdf...
What you propose takes on a huge amount of inflation risk. How are you hedging that risk? A guaranteed yield doesn't mean you aren't getting poorer. Obsessing over one type of risk and ignoring another isn't rational.
Reducing variance of net worth has a very high cost. Over-indexing on that singular property, particularly when most people can afford some variability, is a recipe for relative impoverishment.
not if you're 80 dude...
Right now it's not clear that is true.
Like my country pension scheme. It went through ups and downs for a hundred years but has always come on top. All you need is a long horizon and a trillion dollars and you basically can't lose.
I think the burden of proof is on the closed SOTA model providers to prove they have a moat, because common sense indicates they don't.
[deleted]
If you look at was happening around 2022 - 2023, their growth was slowing down. Lots of the new growth is based on AI but since almost everything AI based is subsidized to hell and back, we have no way of knowing yet if that AI demand is real at unsubsidized AI prices.
Here is the link (oddly I could not find it with HN Search): https://news.ycombinator.com/item?id=48917135
No need to worry or discuss further, it’s all priced in! Everything’s totally fine!!
In other words, they are intentionally deceiving investors and hiding the risk from them. That does not sound like CFO 101, it sounds like fraud. But if grift is your business, I guess those are as valid reasons as any.
[dead]
Ok, so just to be clear: institutional investors are (a) the ones investing the large proportion of capital in these companies and (b) are well equipped to decipher financial statements. The idea that any significant amount of retail investors have even seen a financial statement, let alone is making decisions based on their analysis of a financial statement, is laughable. And, even then, if someone is putting in that effort, then presumably they're not going to get tripped up by a legitimate practice that they ought to specifically be looking for given the context.
And all of that doesn't even take into account that every article discussing the financials of AI firms over the last half a decade have been pointing out these dynamics. We're literally in a thread discussing this exact dynamic. Retail investors are certainly far more likely to make investing decisions based on these kinds of articles and threads than they are based solely on independent financial statement analysis that they're conducting. At a minimum, I think anybody taking any of this seriously has gotten the hint by now.
If it comes out that these firms are committing straight-up fraud, then there will be a lot more to discuss. But, as of now, the sentiment is that these firms are behaving perfectly legitimately, just abnormally and maybe irresponsibly compared to their historical context. If an investor isn't equipped to handle this kind of analysis under these circumstances, then I'm not going to feel too bad if they lose their money "investing" when they're really just gambling.
I bring this up not as a "well, ackshually" but because the datacenter analogy is more similar in that respect...except worse, because now it's a rotting box full of very expensive hardware that hasn't historically held a lot of value until this current shortage
Generally speaking after commencement the former will become both liabilities (for a smaller amount than the number they listed due to discounting) and an asset (representing the asset of the right to occupy the lease)
The latter will generally become some sort of asset
I have no idea what the people going on about subsidiaries could even possibly be referring to as it relates to this article, this is just lease accounting
[deleted]
Who is stuck with that bill and what is their ultimately their primary source of financing?
The engine would also typically be at the top of the mine, not deep inside it.
Any claims that there is any important difference is sophistry.
The average person is struggling in modern America.
The US is second in the world for median equivalised household disposable income, second only to Luxembourg and 10%+ above Norway. For daily median per person income after taxes and transfers, we're only behind Norway, Switzerland, Luxembourg, Qatar, and the UAE. Outside of petrostates, microstates, and Switzerland, no country has richer "average" people.
The US certainly doesn't have the safety net of some of these other states, but these aren't holes you're being thrown into by society: they're pits you've deliberately jumped into in 99% of cases.
Now, let's talk about insurance, that's also much higher. In states like California and Florida, home insurance is through the roof, in some states like NJ and NY, car insurance is through the roof. Both going up way above inflation (like the items in my first paragraph).
You might counter with energy costs are much higher in these European countries (and similar ones like Germany, Benelux, etc), and the purchasing power might be higher, but the wages are so so much lower.
That said, this trope of people misspending their money needs to consider this outrageous costs of things that many people around the world never need to think about. The shitty wages in France are overshadowed by so many essentials being available without a high cost or any cost in some cases.
A US worker at the average wage keeps roughly 70 cents of every labor-cost dollar; a worker in Belgium, Germany, France, Austria, or Italy keeps closer to 47 cents, even before you add in the effect of VAT. Nobody in Europe is getting those services you mentioned for "free" - you're just making everyone else pay for them with taxing their labor. You almost connected the dots when it came to property taxes paying for public services, but missed that Europe assesses income taxes.
>Now, let's talk about insurance, that's also much higher. In states like California and Florida, home insurance is through the roof, in some states like NJ and NY, car insurance is through the roof. Both going up way above inflation (like the items in my first paragraph).
This is a bundle of issues. As a quick list, compare the size/value of an average property in California or Florida to a property in Europe, assuming they even own the property (remember, Europe's home ownership rate is lower than Florida's). Same goes for car ownership costs: American cars are larger, more expensive, driven more, and are more exposed to damages from uninsured motorists, because states like NY, NJ, and CA think it's racist to enforce uninsured (or even unlicensed) motorist laws. Just like health insurance, allowing free-riders on insurance systems is financially disastrous.
>You might counter with energy costs are much higher in these European countries (and similar ones like Germany, Benelux, etc), and the purchasing power might be higher, but the wages are so so much lower.
I'm not sure what you're trying to say here. Yes, Europeans can get a number of services paid for by their neighbor, but it doesn't make them "richer" by any reasonable measure. Quantifying standard of living is incredibly difficult, because even as this exchange shows, people will value different things differently. But broadly speaking, my original point still stands: Americans should not be struggling to live in America, absent poor personal decisions, particularly if you're willing to lower the standard of living to that of an average European (a smaller rented property, driving far fewer miles in a compact car, no air conditioning, etc, etc).
>That said, this trope of people misspending their money needs to consider this outrageous costs of things that many people around the world never need to think about. The shitty wages in France are overshadowed by so many essentials being available without a high cost or any cost in some cases.
What outrageous costs are those? Community college remains very affordable, and costs for 2 years at a state school can be managed, especially against the greater lifetime earning potential in America. Healthcare costs OOP is capped at $9,200 on an ACA plan, which can be nearly free for middle to lower income brackets, and that debt itself is basically unenforceable in most cases these days, assuming you truly don't have the assets to pay.
[dead]
[deleted]
Surely you need about 20 years?
I'm saying that for the cost of buying puts to hedge against equity downside in a retirement portfolio, for any given level of risk, you'd probably be better off just selling some of the equities and buying bonds instead.
e.g. try and find any equity-focused ETF with downside protection that generally outperforms a bog-standard stock/bond split total-market ETF for whatever measure of volatility/downside protection that you want.
And more specifically, it's not low growth/high inflation that kills bond portfolio returns, it's interest rates increasing that devalue bonds, i.e. the transition from low inflation to high inflation. So yeah, you can construct a portfolio that hedges against that... but I'd be surprised if you can do it without decreasing your risk-adjusted expected returns below a plain stock/bond index fund - whatever hedging method you use is either going to increase your interest-rate risk (bonds), or your inflation-rate risk (cash), or is going to limit your upside (buffer etfs), or is just going sap your upfront returns (protective puts).
ATM options cost approximately 0.4 S sigma T^0.5 (do a Taylor expansion of the "N"s in the Black Scholes formula), so indeed, for current index vols of about 16% we are talking 0.4 * 16% * (1/12)^0.5 = 1.85% for a 1 month option, and 12 of them indeed cost 22% of your portfolio. Not a good idea.
However, if you hold the options only half the way to expiry, you lose only 1/4 of the time value. And if you buy OTM, you have convexity coming your way on the way down.
Lastly, index vols were very low (until yesterday, ha), as so many firms entered the dispersion trade: they wanted to go long dispersion (some firms do well with AI, some lose out), so short correlation, therefore long single stock vol and short index vol. Which means you could buy index vol (ie protection) quite cheap.
[deleted]
24%
We are both German and in the 92nd percentile of the income distribution.
If so, by my rough math, you’re paying about 25% more in taxes than an equivalent American couple based on PPP. That American couple would have about $30K USD/26K Euro more in disposable income, would likely have good quality health insurance paid for by their job, be eligible for $3K to $4K in social security retirement income per month, and be able to individually contribute to tax free retirement accounts, tax free college funds for their children, etc.
Now redo the math.
I and most people in my peer group pay over 40 percent of income in taxes, and that's NOT including property taxes, which are much, much higher than in Europe. Some much more than that - like triple (city, state and federal).
State taxes were completely ignored from your math.
This message, and the message before it which I am at pains to rebut much of, contains a lot of misleading cherry-picking.
And you compared European universities to a two year county college degree? Healthcare costs were also greatly glossed over. I'm hoping someone else is triggered but if not I'll be forced to step in and correct this stuff.
401k lets you rebalance a portfolio with zero tax implications.
The downsides are generally high fees and a 10% penalty for early withdrawal which makes them surprisingly bad for young people. They tend to start in lower tax brackets, have fewer reserves when unemployed, and face fewer risks from an unbalanced portfolio.
Pay down debt then Roth IRA when young 401k after 40 is often better than defaulting to a 401k, but saving anything tends to be more important than such optimizations.
Cars, student debt, credit card debt all gone. (And I dread needing a new car). Covered downpayment on my house and cash for a nice shed that matches the house and a fence so my kid can play in the back yard with no issue.
Invested low 5 figures into myself taking a year off and now I am getting serious about the 401k at 41. And I am ok with that.
I never worked at a big tech company and I covered my mom's down payment and appliances and new carpet and part of her move for her to move close to me. Dad died when I was 11 so I am all she has and she was a public school teacher so she's on a small pension.
We all walk a different life and I know people that make my entire life savings in a year but I will eventually grow a retirement to get me through 10-15 years and then it will be what it will be. (Maybe a tank of helium and bag)
[deleted]
To me the diversification hedge options (say GUNR) seem like they are helping you get closer to regime neutral. Or in other words you are giving up returns to cover more macro scenarios and betting less on what the future looks like.
It's effectively impossible to hedge against every possibility, including temporary drawdowns, while still having positive returns after inflation.
The US median household pays roughly 10–12% of income in federal taxes. A German median-wage single worker's net rate is somewhere in the high-20s to high-30s percent.
Germany will be 10 to 20% higher in total taxes: income, property, sales/VAT, etc; than an American at a comparable professional income. If you claim to be paying 40, you'd be paying 50%+ in Germany. $10 to 30K a year more gives you a lot of room to save for college, pay for medical expenses, etc: the "safety net" in Europe only helps you if you don't want to work or don't want to earn a significant income.
States feature low or 0 income tax, including desirable places to live like Florida and Texas. Yes, they'll have property taxes or others, but again: personal decisions. If you choose to live in CA, vote for CA policies, then you have to pay for CA's waste.
If you read my comment, you'll see I'm saying you can minimize college expenses by doing 2 years at CC, then transferring, yielding a total college spend of just a few thousand dollars (not the absurd $100K student debt loads people incessantly whine about online). Healthcare costs are simple: if you pay for ACA-aligned insurance, again, your costs are capped: $10K OOP max sucks, but if you made the decision to purchase insurance, you're not paying the $200K medical debt people claim online.
My central claim was and remains: America provides more opportunity to earn money, and people misrepresent the "downside risk" of America's approach to healthcare, college, and income by refusing to acknowledge that the worst outcomes are of people's own making. America gives you far more opportunity to excel, but also doesn't backstop your personal failures with your neighbor's work to the same extent (at the individual level, ignoring govt. bailouts of companies).