> buy debt from big tech companies because you believe it's too risky, then you believe that bonds are just too risky in general

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?

OK, wait a minute. Elsewhere in this discussion, people are saying that only a few of these AI companies are going to survive. For stocks, that can still be a reasonable investment - low odds, but still a positive expectation value - but for bonds, it's terrible. You're paying me single-digit interest when there's only a 20% chance that you live long enough to give me my principle back? Get outta here. Literally nobody should be investing in such bonds.

One of the big issues with this is sequence of returns risk. If you retire and rely on your portfolio but the market dives for a year or two right after you leave the workforce, your total portfolio value is screwed because you were selling at a low point.

During the dot-com crisis. Nasdaq fell around 78% from its peak and S&P by around 49% so it isn't unprecedented (ironically has both aspects of being both tech and are within the same time-era)

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.)

It is unlikely that a 50% drop in NVidia wouldn't be paired with a significant drop in the valuation of every other company heavily invested in AI.

> EDIT: to note, the top ten companies in SP500 make up an unprecedented concentration but they're not "mostly AI".

They're mostly either AI proper, or hardware manufacturers benefitting from AI boom, or provide cloud services to AI companies...

An AI collapse would represent a generational buying opportunity for companies like Meta, Google, and MS. It would be bumpy for a bit while things unwind, but eventually all this FCF they have been dumping into AI would start dropping to the bottom line instead. It's like when Meta stopped dumping money in Reality Labs, but on a much larger scale.

Regarding unprecedented concentration, wasn't the nifty fifty era comparable for the top 10, about 40%?

Idunno man. Am I the only one that remembers the day the first DeepSeek model came out?

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"

how are they not “mostly AI”?

"This tree only makes up 0.0001% of the forest. If it is lit on fire, the forest will be fine"

But if their debt goes bad, isn’t that debt the very bonds that make up the other part of those asset allocations?

The problem some have pointed out is that these companies are such a huge portion of the market right now.

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.

The employer selects a financial company to manage the 401k. When you switch jobs, you can roll the 401k from the previous employer into the new one, or into an IRA (Individual Retirement Account).

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."

Regardless of whether it's a good idea, it absolutely happens and as a result would impact retirees, both in individually managed accounts and target date funds. For example here 70+ are 45% equity.[1] TROW retirement 2020 funds are about 50% stock, for example, and only decrease to a floor of 30%.

https://workplace.vanguard.com/content/dam/inst/iig-transfor... (page 78)

There's a wide spectrum of 'private credit', and it varies from low-risk to quite high risk, depending on the debtor. In the case of "AI Companies", their debt is low-risk, but many are creating special-purpose-entities which will build and own some or all of their newer datacenters. Those datacenter companies are issuing a great deal of somewhat risky debt; with the exact level of risk depending on the off-take agreement.