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?

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seizethecheese 18 hours ago | parent | next [-]

I think the stock wipeout would itself trigger a recession.

If the hyperscalers needed to wipe out most of their income on interest expense they’d lose a large amount of their market capitalization. This could drop the stock market a huge amount, and a lot of spending is driven by the “wealth effect” of households feeling wealthy.

	▲	keeda 18 hours ago \| parent [-]
		Right, a stock market crash would be very likely given how concentrated it is on the Mag-7 (or whatever Big Tech is called now.) The reduced consumer spending due to the reduced "wealth effect" makes sense, and it could worsen the downward spiral. But it seems to me that if a stock market wipeout triggers a recession, it's because of deeper, pre-existing problems with the broader economy (inflation, jobs, war) and the stock market (concentration, unrealistic valuations) that are unrelated to the AI spending.

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rich_sasha 14 hours ago | parent | prev | next [-]

There’s plenty of second order effects. What would this do to the insurance or pension firms who hold this debt? The banks who hold this debt? Also a lot of this debt is possibly held by smaller players who would get wiped out.

The GFC “proper” was the dramatic crash in the liquidity of credit markets, not strictly a corollary of the losses on property and mortgage-backed securities.

	▲	keeda 11 hours ago \| parent \| next [-]
		Makes sense, when a crash happens liquidity will be terrible -- almost by definition, as the hyperscalers won't have the cash on-hand to make good on their debts. But what I'm trying to understand is exactly what happens to those who are holding that debt, given that the debtors will soon be making a lot of money again (from their pre-AI businesses)? Won't the debt-holders have some claim to that future cash flow to be made whole?
	▲	senko 8 hours ago \| parent \| prev [-]
		> What would this do to the insurance or pension firms who hold this debt? If the debt is serviced, nothing.

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HDThoreaun 2 hours ago | parent | prev [-]

You also need to remember that a huge portion of the 1.65 trillion isn’t actually debt, but leases the hyperscalers have committed too. This is important because there’s no interest to be paid on leases. A ton of the money is multi billion dollar payments that are owed a decade from now.