AI infrastructure debt could intensify a market downturn

Transcript

From the transcript The Diary Of A CEO publishes with the episode.

1. 51:43

   It's getting cheaper because those companies keep on borrowing and spending more money to get more power in order to power all the AI. I think this is surprising to hear from you because you're someone who built broadcast.com at a moment when we were living in like an exponential era. Yeah, an analog error. Yeah. Yeah. And, you know, the internet was, I mean, people were skeptical about the internet.

2. 52:07

   Yeah, when I said we were going to stream or, you know, netcast is what we called it, they were like, you're an idiot, I'll just turn on the TV. You're an idiot, I'll just turn on the radio. Yeah. I just, I'm not a naysayer on AI. I am the biggest proponent of AI that there is. But in order to really get the benefit, you have to be, you know, honest about it. Like I said one time that a lot of these data centers will turn into pickleball courts, right?

3. 52:34

   As a metaphor, not that literally they'd be pickleball courts. Because in order for AI to reach the pinnacle that everybody wants to reach it, you have to have less power doing more, not more power doing more. Because then you run into constraints like we're running into right now. We literally could get into a debt bubble in the United States of America because there's so much debt being taken out by all these, you know, hyperscalers.

4. 53:00

   You think that's possible? Yeah, of course it is, because our deficit keeps on rising in the United States, which means we have to borrow more money. And the hyperscalers are borrowing more than they're making. And so they're borrowing more, and that lenders are competing for that business, or they're competing to get lenders to lend to them. Rates keep on going up. I mean, if you've got a $40 billion debt and your interest rates keeps on going up, at some point, you can't raise money anymore.

5. 53:28

   Right. There's a lot of praying going on right now. I'm a huge fan of NVIDIA and Jensen Wang, but they're basically subsidizing half the industry because they have the cash to do it. And you've got, was it Goot? No, Meta, I think it is, borrowing more than they have in cash flow by a factor of. I mean, if it were the brilliance of brilliant, it should be the opposite, right? And at some point, it may get there.

6. 53:56

   But until then, we're in this private credit debt environment where there's a lot of uncertainty and a lot of things can go wrong. I mean, if you read what Ray Dalio says, you know, Ray says, we've already crossed the curve, right? We're already past that point where we could be a debt-laden society where our currency becomes, you know, worthless at some point. Where are we in this at the moment in terms of the symptoms or markers of the next big collapse?

7. 54:24

   Well, we're over in this vicinity over here. The U.S., the U.K., a number of other countries are later in that cycle when there's the loss of the things that we've been talking about, over-indebtedness, more over-indebtedness, the loss of power. So we're in the collapse period of the decline. Yeah, the decline. I'll call that the decline. It's hard to imagine that for America, especially when you're 34 years old, because you've just always seen the dominance of America.

8. 54:54

   Right. No, as an American, it's hard to imagine. You think we'll figure it out. Yeah. We'll always figure it out. And I'm optimistic enough to think that we will, but there'll be pain associated with that. Our politicians are great at sloganeering. They're really bad at actually doing things. And I think that's going to be tough in this country. In all countries. I think a lot of people think AI is the life raft out of the debt as well, because if you hear this age of abundance idea.

9. 55:20

   It's a race. It's a race, right? Will lenders lend to AI companies if interest rates hit, you know, now the 10 year is like 5.2%. If it goes to 6%, 8%, 10%, something's got to give. And right now at current interest rates, we're paying a trillion dollars in interest every year in this country. a trillion. And if the interest rates keep on going up and what we have to borrow keeps on going up, and then you've got all these hyperscalers competing to get access to that money, something gets crowded out.

10. 55:53

    I don't know which or what. I'm not enough of a financial expert to do that, but something's going to give. Are you playing defense in any way, just in case? Yeah. Yeah. What does that look like? I've got money in this country, in that country.