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Hedging The Hyper-Spenders
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“Imagine one of these companies did cut capex. Investors would ask, “What happened?” And then, “Are you less confident that these bets are going to pay off?” And then, “If so, what does that mean for the money you’ve already spent?” While they were asking those questions, they’d probably be selling the stock.”
Mulling over this, doesn’t it sound like they are now captive to the narratives they’ve spun? They’ve spent, perhaps squandered, so much money that have to keep on spending to save face and even fend off potential class-action lawsuits.* It complemants my thesis that the same mechanism helps explains the industry’s slavish adherence to the “Just make the LLMs even larger!” strategy.
*JL & GJ – we should nose around those funds that finance class action lawsuits. These could be big ones.
It’s an AI arms race, seems probable that some will lose. Not too many dinging Apple now for pulling out early.
Showing my ignorance here.
Lots of big numbers thrown out about hyperscalers capex spend. It isn’t clear to me how much is direct borrowing by hyperscalers (hence a liability) vs. how much is run through SPV’s (which I understand are usually carefully constructed to maximize control by, limit actual $ investment from, and limit liability of the hyperscaler).
I would think there would a big spread differential between borrowing by the strong balance sheet hyperscalers vs. SPV’s backed by an asset of rapidly declining value (e.g. chips) and data centers at the margins of data center bandwidth that may actually not be insatiable (less training/more inference, novel AI software strategies, etc.).
How does this interact with the treasury bond sales currently going onto to fund the government. I’ve read those sales are draining treasuries liquidity, curious that effect might have on the market.