YHK - yet another hacker news clone

Not that I don’t agree with you in many ways, but if I was going to push back a little bit I’d ask you this:

Is this money not understood by the tech giants taking on the debt? I imagine they understand exactly what’s going on.

I think the way they see it is that it’s riskier for them to miss out on timing this investment.

The other question is “where else should they put their money?” Tech giants before the AI boom made a heck of a lot of cash that they had nothing they could do with it. Remember before AI when the existential crisis was stock buybacks? That was a bunch of companies who had so much profit that all they could think to do with it was buy their own stock back.

I am sure there will be a bubble pop, correction, general downturn, or something like that, but the question remains how much it’s actually going to matter. If AI blows up in Microsoft or Google’s face they’re just going to write it off and spend a decade paying zero income tax, or whatever other clever corporate accounting gets them out of that pickle.

OR they think it is a no lose situation. (aka the US Govt will step in and buy their debt if they falter, aka privatize the profits, socialize the losses)

HN? Are you talking about KOHEI YAMADA at Nikkei?

Does this thinking apply to tech's VR bet, for example?

The FOMO argument is exactly what was used by banks in GFC: as long as the music is playing need to dance.

But current era also has echoes of capex financing (eg cisco lending to its buyers) and Enron (eg use of SPVs).

I don’t think that most people who are concerned about a bubble think people and orgs fueling it are stupid, but they’re operating with local incentive structures that can result is systematic problems.

And for folks who have lived through multiple of these (and maybe lost paper wealth, retirement savings, or homes), I think being concerned is reasonable.

Hard won lessons and all that.

Smartest guys in the room

The world is run by completely average people making series of mundane decisions. There is no super genius who’s job it is to understanding the risk of investing in AI.

It’s just some nameless regular guy crunching some numbers and feeding to another regular guy who interprets the numbers. And so on

They might have a conflict of interest so that they shouldn't be trusted implicitly even if they can theoretically do a better job. Also, we live in a democracy, and these are public companies. With that much money on the line, they become quasi-governmental in shaping the economy and such. If they don't like public scrutiny, probably best not to be a public company. The workings of a public company should probably be a public interest, so the public can support laws and regulations appropriate for them

HN has devolved considerably. It is practically general Reddit-tier kneejerk contrarianism now. I'm getting literal "Cool story bud" replies to me within the last day.

Year after year of the advent of LLM's has repeatedly shown HN overall consensus gettings things wrong again and again. AI lab employees aren't here they're on Twitter/lesswrong. 6 months ago Mythos was announced and it has been an absolute deluge of "it's just marketing stunts." Practically 75% of many threads had that take. Strange, we don't hear much about that anymore, now that the plethora of hacks has taken place and increasing. There will be no mea culpa, just moving on to the next kneejerk dismissal as peoples' subconscious fearfully grapples with our immediate future. They want the AI boom to fail, because the implications of what happens next when it doesn't fail is unknown and vaguely frightening to them, for now.

> understand and minimize these risks

Since when did any employee ever do that? "It is difficult to get a man to understand something when his salary depends on his not understanding it". The higher up the food chain often relates in great part to accepting anything thrown at you with a nod and a smile. 6-7 figure incomes don't arise from sounding the alarm and creating problems for everyone within range

Because history shows time and time again that these folks you speak of who’s job it is to manage risk are actually pretty shit at managing risk.

Go watch "The Big Short." Why should we trust the people that analyze risk? I was working during the dot com boom. I remember the 2008 housing crash and the fallout. Then combine that with Enron style fraud.

Also many of us are working in these AI / data center companies.

How's Project Titan doing? Was that a good use of corporate funds and energy?

As I've been pointing out a little bit recently -- the 'downside' scenario -- somehow we conclude we have enough inference at our world's desired quality and therefore demand stabilizes below that of these datacenters -- would be GREAT for the world. Super cheap intelligence for all.

If some lenders go bankrupt on a datacenter note post-buildout and the capital structure is reworked, lowering the costs by removing capitalization costs from the cashflow of the inference provider, that is all to the good of people who did not do the initial lending.

I think that is extremely unlikely, but it's good for datacenter doomers to think through these scenarios IMO.

what do you think debt is? what you've described as misleading, is debt by definition.

It depends. For Anthropic half of the $900b is going to be incurred by the end of 2030. There's definitely risk.

Yup. This is terrible financial reporting.

One thing the tech giants are worried about are being left behind on expanding their compute. So what do they do? Sign a contract to agree to purchase $XT in compute over the next X years. It’s like buying an option - it’s a right, not an obligation to purchase.

If I were an investor and spent $10,000 to buy options to purchase $1,000,000 in Google stock, it’s not “$1,000,000 in hidden debt”

This very much is debt. Is it your contention that debt can ONLY arise with an exchange of cash? Because as an accountant I find this preposterous. Under IFRS 16 we recognise, for example, long-term leases as debt, because they are obligations to the business. An obligation to pay in the future is almost the definition of debt. An interest rate is not part of that definition, necessarily.

Part of the problem if I understand correctly is that many of these commitments are now used to value related companies. I.e. if the some of the contracts are cancelled, many companies will drastically have reframe their profits/stock prices etc.

That is why it is "hidden".

This is very much like the 2008 disaster. You effectively have debt laundering happening whereby speculative income / debt is manufactured into higher grade than it is by passing through multiple parties / steps / debt-like vehicles that look independent but in fact incorporate cumulative risk built on highly correlated factors. Downstream party D has no visibility that the specific uncertainty emanating from party A upstream is 100% correlated with their own risks, along with parties B and C through which the liability passed on the way to them. What looks like independent risks are actually all the same risk and completely fragile to a single event that has quite a high probability of occurring.

Well, it can trigger the next financial crisis either way. Because now that spending is on the books of two companies: xAI, as a projected income, and Anthropic, as an external investment[1] that justifies their overblown valuation. Now, if Anthropic decides to get out of that deal, then the stocks of both Anthropic and xAI will crash, possibly triggering a wider market crash.

[1] it is an investment because I think xAI agreed to sell their compute infrastructure well below market price.

Exactly. This is like calling an order debt. Orders can be canceled, and market is clearly starting to price that in based on significant derating in semis over the past few months.

If OpenAI does not buy compute from Azure will they go bankrupt? Probably not - and that should be a . There is very likely a lot more discretion in these agreements than this article implies.

This sort of reporting is a clear indication of where sentiment is.