r/valueinvesting
AI Debt is more like 2008 not 2000 - Silicon Subprime loans
The author warns AI hardware-backed debt is a 'silicon subprime' bubble due to rapid depreciation and geopolitical risks.
- AI hardware depreciation is artificially prolonged, but actual value drops much faster (e.g., H100 rental rates fell 60% in 2 years).
- Next-gen chips like Vera Rubin will be so efficient that older hardware may become economically unviable to run.
- Geopolitical risks and delayed datacenter projects could lead to massive non-performing loans backed by AI hardware.
In the end of 2025 there was $200B worth of debt which used AI hardware as collateral. With $800B expected to be added over the next two years.Those are 10-15 year long period loans.
AI hardware's amortization rate has been artificially prolonged to 6-8 years so that it wouldn't drag earnings too much. And even if you think that the physical life of a modern compute rack is 6-8 years, which is not really tested or guaranteed. The rate of innovation makes hardware real amortization speed much faster. Don't go any further than the same neoclouds to prove the point. Rates for H100 changed from $4.7-$8.0 per hour in 2024 to $2.0-$2.5, that's a 60% drop in just 2 years.
And with Vera Rubin being so much more efficient in compute per unit of energy, it might come to a point that it is simply economically unviable to run H100s anymore. Those H100s that someone took a loan for the next 15 years.
Also with so many datacenters being postponed to 2028, I can imagine some of that hardware will get old without being even used.
Not to mention the trade wars, the Iran war, the export ban of rare earth metals. Like I can imagine a lot of those loans being non performing. Silicon Subprime loans.
1T in debt for a collective market cap on the companies of what, 10T or more? most of whom have virtually zero debt on their books? 10% debt-to-equity?
in what world is that like 2008, where prop desks were leveraging up "AAA" mortgage pools 10x or more?
love the "and \hand waves towards other things that worry me\" at the end to really drive the point home
Everyone watched the big short downloaded robinhood and now is a financial advisor
Shh let him cook
Well, check neoclouds their debt to equity ratio might surprise you.
And i meant that the underlying mechanic of using mispriced assets as collateral for loans that are later resold as secure is matching the 2008 loan spirit.
shitty a100s from 6 years ago are still under max utilization (per AWS), the investments have paid off massively, why on earth are you so confident the dep schedules are aggressive and that the roi won't be there?
who gives a shit about neoclouds?
What are you talking about? Neoclouds, their sole purpose is to take risk for hyperscalers. That is their business model - a lightning rod
wtf ?
Go check mags 7 only those matters
What do you mean? Their hardware depreciate at lower rate?
Also neoclouds are in their purpose extensions of hyperscalers. They are meant to take on the risk and debt that would look bad on Microsoft's report.
Ok Burry
Ed zitron would like a word
I agree, we'll easilly crash 50% and dollar will also crash by half.
Sooo the market cap will stay the same because of the currency debasement. Nice
No, it will halve also in value like in 2008.
That was situation most of last 12 months, this months s&p was higher than 1 year before in dollars but almost no gains in other currencies
The same NIKE that's been on a downward trend for five years, is at a 30 PE, and at the same cost as it was in 2014?
eventually it will pop off like GE did.
Hopefully. One I always recommend that only has trended upward over the six years I've held is Hilton. Solid fundamentals and consistent earnings.
doom harder bro
Yeah it's all over the internet. Here is an example
https://kalkine.com.au/news/general-news/private-credit-gpu-loans-and-securitisation-how-the-ai-data-centre-boom-is-being-financed
I think that if people do not carefully evaluate the risks of borrowing money, things can go badly. In 2008, the assumption was that most risky home buyers would continue paying their mortgages. In this case, the assumption seems to be that AI demand will keep growing and generate enough revenue to cover the debt.
If AI demand slows down or does not meet expectations, borrowers and investors need to understand the risks they are taking. Right now, it seems like many people are being greedy and are willing to accept those risks because they expect the AI boom to continue.
The leverage is nor nearly hight enough. My guy we need tk get at least to 5x levels to get into scary teritory in terms of debth.
Right. But amortization speed is the same for all hardware, cash or debt.
Debt just makes it more sketchy, because it gets resold.
Amortization is okay because the hardware will probably last that long.