The markets are just in the Twilight Zone at the moment. The CDS on some of these bonds are now priced assuming the bonds will fail (or at least more likely than not).
From a financial standpoint this is all looking like early 2008. The risk assessment bits of the market seem to have concluded this is all totally f*ked. But money keeps getting pumped into things that the market has decided will fail because the only thing that stops it from imploding is pumping more money in.
Like 2008 once key players get their armor on, expect things to suddenly unleash in a way that gets real ugly real quick. This is essentially what the article is saying. This all only hasn’t collapsed because money lenders haven’t pulled the plug yet. When that happens, and with every day this looks like a question of when not if, it will be a $hitstorm the likes of which we’ve not seen in a while.
As much as it'd thrill me in one of the worst Pyrrhic victories to see the AI bubble burst, I think it is way too early to claim that a single bad day or a single bad week means it's collapsing.
1. GPUs are reportedly increasingly just getting put on shelves because there aren’t data centers to host them, which is creating a setup for a financial mess (rapidly depreciating assets purchases and initialized),
2. And massive portion of the compute “demand” coming from circular financing (ie AWS is “sold out” in large part because it gave startups like Anthropic money to buy the thing it’s now telling the market is “sold out” so there’s some shenanigans behind those headlines.
I disagree though that compute is really the only place to make money in AI in the long run. Models are an increasingly a commodity with little value above the cost of compute to run them. However selling compute will be with razor thin margins, not the fat AWS margins the market got used to in cloud, so AWS and others will have to deal with that uncomfortable reality.
The compute they sold is based on the idea that the amount of money people spend on inference will continue to go up dramatically.
If we’re in a gas shortage, all that matters is who has the gas, true. But the issue is that we’re burning 50% of the gas that’s made every day, mean while the other 50% is being stockpiled based on the idea that everyone is going to drive 10x farther next year.
The markets are just in the Twilight Zone at the moment. The CDS on some of these bonds are now priced assuming the bonds will fail (or at least more likely than not).
From a financial standpoint this is all looking like early 2008. The risk assessment bits of the market seem to have concluded this is all totally f*ked. But money keeps getting pumped into things that the market has decided will fail because the only thing that stops it from imploding is pumping more money in.
Like 2008 once key players get their armor on, expect things to suddenly unleash in a way that gets real ugly real quick. This is essentially what the article is saying. This all only hasn’t collapsed because money lenders haven’t pulled the plug yet. When that happens, and with every day this looks like a question of when not if, it will be a $hitstorm the likes of which we’ve not seen in a while.
It’s “How much longer will the bond market sustain the nonstop spending spree?”
As much as it'd thrill me in one of the worst Pyrrhic victories to see the AI bubble burst, I think it is way too early to claim that a single bad day or a single bad week means it's collapsing.
The only thing that matters is who has the Compute.
I bought a gaming GPU six months ago for running local LLMs, at outrageous price (2x MSRP), and in 6 months it's price doubled again.
AWS already sold all the compute it has planned for 2026, 2027 and 2028.
Except:
1. GPUs are reportedly increasingly just getting put on shelves because there aren’t data centers to host them, which is creating a setup for a financial mess (rapidly depreciating assets purchases and initialized),
2. And massive portion of the compute “demand” coming from circular financing (ie AWS is “sold out” in large part because it gave startups like Anthropic money to buy the thing it’s now telling the market is “sold out” so there’s some shenanigans behind those headlines.
I disagree though that compute is really the only place to make money in AI in the long run. Models are an increasingly a commodity with little value above the cost of compute to run them. However selling compute will be with razor thin margins, not the fat AWS margins the market got used to in cloud, so AWS and others will have to deal with that uncomfortable reality.
The compute they sold is based on the idea that the amount of money people spend on inference will continue to go up dramatically.
If we’re in a gas shortage, all that matters is who has the gas, true. But the issue is that we’re burning 50% of the gas that’s made every day, mean while the other 50% is being stockpiled based on the idea that everyone is going to drive 10x farther next year.