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AI Bubble Fears Morph Into CDS Hysteria
Late last week, I wrote about the hullabaloo over Oracle's credit default swaps.
The overarching me
There seems to be an unwarranted conclusion about “big tech” companies that high stock prices and a billionaire CEO means they are “good” companies. My experience as a customer of Oracle, for example, does not support this common conclusion. In my experience Oracle rarely competes the installation of its software as initially specified and rarely, if ever, not inside the proposed budget. Performance is mediocre at best. Apple products have been good, but their evolution as a supplier is slowing. NVDA is number 1 but how long it can stay there if the repurposing and refurbishing of its products continues to grow. Market cap only measures stock market performance, not product quality or product performance on the job. Even the good still can die young and insurance will remain helpful. It’s just hard to tell how much will be needed, even for the market.
The issue, I think, is that the cash flow of the hyperscalers, while huge, is not nearly enough to fund the epochal AI investment that humanity’s future, or at least near-term stock prices, now require. Other funding sources – bonds, private credit, sovereign funds, according to Altman even US taxpayer backstops – are required.
So the credit market’s views on the likes of Beignet Investors LLC, CRWV, OWL, ORCL are actually central to the story. If investors balk at lending to the likes of them, then the cookie will crumble.
So far, investors seem game. Beignet’s $27BN bond offering was the largest corporate offering ever, I’m reading, and even if 6-7% seems high for an ostensibly A+ rated bond, it was bought. So, $27BN down, $4,973BN to go? ***
*** JPM estimate of $5TR AI investment in N5Y.