It is not just that they have the debt, it. is they are trying to hide the debt. Why would a legitimate company try to hide their debt?

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postalcoder 3 hours ago | parent | next [-]

There are many reasons to use subsidiaries for things like this, like to invite outside investment, ringfence risk, cede operational risk, and many more.

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.

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Imustaskforhelp 2 hours ago | parent | next [-]

> There are many reasons to use subsidiaries for things like this, like to invite outside investment, ringfence risk, cede operational risk, and many more.

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.

[0]: https://news.ycombinator.com/item?id=49023596

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sdellis 3 hours ago | parent | prev [-]

"There are many reasons to use subsidiaries for things like this, like to invite outside investment, ringfence risk, cede operational risk,..."

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.

	▲	WarmWash 3 hours ago \| parent [-]
		She's a witch!

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ch4s3 4 hours ago | parent | prev | next [-]

> is they are trying to hide the debt.

They aren't hiding it though. The contracts are recorded in regular filings.

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Noaidi 4 hours ago | parent [-]

Rope a doped with cope. Maybe you should buy some $ORCL?

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."

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ch4s3 4 hours ago | parent | next [-]

Retail investors shouldn’t be investing in individual stocks outside of industries they understand well. Following GAAP is the definition of not hiding the obligations.

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chairmansteve 3 hours ago | parent | next [-]

Maybe GAAP should be changed? Professional investors have the time to comb through the small print. These off balance sheet activities seem designed to bamboozle the small investor.

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turtlesdown11 2 hours ago | parent | prev | next [-]

Enron also didn't violate GAAP so by your definition, no financial wrongdoings...

	▲	linkregister an hour ago \| parent [-]
		The essence of the Enron scandal was the perpetration of accounting fraud. It took down Arthur Andersen. We went from the "Big 5" accounting firms to the "Big 4" because of this. They very much violated GAAP. https://en.wikipedia.org/wiki/Enron_scandal

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jxjfjkfmc 3 hours ago | parent | prev [-]

[dead]

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nater5000 3 hours ago | parent | prev [-]

>but may make it difficult for retail investors to recognize risks

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.

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timacles 4 hours ago | parent | prev | next [-]

Because they have even more debt than the debt we assume they’re trying to hide

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luckydata 3 hours ago | parent | prev [-]

they aren't trying to hide anything, those are accounting rules that are applied to the letter. I'm feeling like I'm taking crazy pills whenever I see this stuff about AI, your hate boner for a specific technology shouldn't trigger you saying things that are provably untrue.