THIS IS NOT DEBT. With debt you are given money that you can spend, and then you have to pay interest for a while and then return all the money you spent.

These are signed contracts for future spending. However, we don't know what the terms are for those contracts and how easy it is to get out of them. For example, with Anthropic and Google's contracts with xAI's compute, they signed a long term contract, but they can get out of the contract with 3 months notice. That isn't a good indication of future spend. The same goes for all of these $3.2T, so these numbers are sus at best.

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.

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.

Call it what you want, but if the companies who received the orders are able to treat them as assets/income then the overall macro effect will be the same as with debt: leverage. If funding begins to dry up it may not be Anthropic or Google facing a liquidity crunch, but someone will be.

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.

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.

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.

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”