$ORCL is basically one rating from being downgraded to Junk. If Oracle debt is downgraded to Junk, it will be a powerful shock for the AI/ DC buildout trade.
One of the important off-balance sheet item is, the chip manufacturers are back stopping the leases for DC that will hold its chips. This growing exponentially. Below is $GOOGL, and $NVDA has just announced a similar deal with OpenAI worth about $250B.
Essentially the chip sales are actually funded by the companies themselves. They book the revenue and send the money back to the vendor as financing…
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This is a lot like vendor financing and off-balance-sheet leverage dynamics that brought down Lucent and Nortel in 2001 and nearly wrecked GE Capital in 2008. It’s a red flag.
Wendy
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“It’s all one trade,” he said. “Even people who think they’re diversified, because they own 60% stocks and 40% bonds, are missing the fact that they’re actually not diversified, because of their 60%, more than 50%, is of it is tech and AI related, and of the 40% of the bonds, most of the new issuance of bonds is AI related. … What’s scares me is that it’s all one trade.”
The investor said he is sitting on a lot of cash until he figures out what to do.
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Steve Eisman 2 months ago: “Stick with tech.. I like most of the Mag.”
‘Big Short’ investor Steve Eisman: I don’t have a problem with the market right now - YouTube
Today: “I sold my tech stocks months ago.”
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I subscribe to a service that is buying a lot of tech right now. 10 buy notices just today.
Getting a lot of conflicting signals right now.
Within tech, there are sub-sectors, like Software, SaaS, Chips, hyperscalers, etc. There is rotation happening between Software to Semi’s to Software to Semi’s to Software to …
It all depends on the time horizon.
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I made this point in up-thread I think. I was reading a bit more about how the DC SPV (Special Purpose Vehicles) are set, and how their debt is structured, etc. I think if the AI bubble bursts, it will be as bad as GFC for the overall economy and tech stocks will have dotcom bubble moment, i.e., many tech companies that survive are going to decline 50%, 60%, 70%, 80%, 90%. The debt is reaching over $2T+, and lots of this debt at least over $1.5T should be held widely, we are not realizing it.
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