Five US tech giants' hidden debts soar to $1.65T on opaque AI funding

As someone who belongs to “all of us”, i vote to not bail us out if shit hits the fan. No need to ask me when it happens, OK? No really, it’s nice of you but we really dont need to be bailed out. You are welcome :)

These are relatively contained private credit markets though. We’re not looking at anything 2009 level. For scale, total US mortgage debt peaked at $9.3T ahead of the subprime mortgage crisis, 73% of GDP at the time. We’re talking here about ~5% of GDP.

"U.S. energy company Enron, though fundamentally different from tech giants, collapsed in 2001 due to off-balance-sheet debt hidden behind multiple shell companies. Even with proper accounting practices, an increase in joint ventures with low transparency could raise concerns in the market."

Remember the vendor financing model which got a lot of technology companies into trouble at the same time? It took some years, almost all those companies disappeared. Motorola, Nortel, Lucent ...

> it’s not the tech giants but the banks that lent the money to the SPVs that are at risk

Banks have not been loaning AI money for some time. They hit all their regulatory safeguard limits so they can't keep loaning. Half the money being invested in AI is private capital. There is still systemic risk, because private capital is a shadow banking system and you don't know who will be affected when they go kaput. Your utility company may [read: will] go bankrupt, but the money in your personal bank account is safe. Your retirement account, however...

If I owe the bank $750,000 and can't pay, it's my problem.

If I owe the bank $1,750,000,000 and can't pay, it's the bank's problem.

>Well technically they don’t own the debt

Channelling the 1980s for off-balance sheet financing 101.

From an economic perspective there is zero difference between borrowing to buy an asset and entering into a non-cancellable long term (equivalent to its economic life) lease for the asset.

The first option causes an asset and a liability on the balance sheet, affecting debt ratios that appear in financing contracts and so on. The second does not appear on the balance sheet.

You pay every month, like it or not. You call it interest or you call it a lease payment. You need it off balance sheet for reasons, investment bankers will structure that to make it happen for a fee.

Technically, from an economic perspective, it's debt.

> This usually means all of us are on the hook.

And since we are talking about USD (specifically "of" USA), it also means globally a hell lot more of "all of us" are on the hook than we would have been involved (even remotely) had (or would) this endeavour ever ended up in some sort of general success.

I don't know whether it'd be "tails I win, heads you lose" or "I reap the profits alone, you reap the losses alone". Maybe the latter and it becomes magnitudes more interesting when it expands (or rather engulfs) beyond the boundaries of the great nation.

That is not accurate according to the article:

> By investing in the data center's operating company with a 20% stake and using the facility under a lease agreement, Meta secured computing resources but also increased its hidden debt.

> Meta has a contract guaranteeing investors' losses if the data center becomes unnecessary and the lease is terminated.

The way they are hiding these debts is by having a stake in a data center company. But if shit goes tits up they are contractually liable for 100% of the losses.

It's not the fund that lent the money to the SPV, it is Meta who is offering guarantees here.

It doesn't matter who owns the debt, if the debt won't be repaid or refinanced a big black hole on someone's balance sheet of >1.65T will materialize!

The consequences could be unpleasant.

But how could it be that the banks have lent the money without a leverage or proper risk assessment? Also what I don't understand is that how come the banks cannot claw back the money they lent if they found out corruption or any other ill intention by the borrowers.

The banks aren’t lending the money to these SPVs. It’s mostly private credit.

The way banks get involved is that they may be lending senior financing to the private credit funds but that means they have a ton of subordination.

how are these long term commitments structured? Can the big companies default on them? pay a small penalty? I think that probably makes a large difference.

Let all these greedy AI giants go down

We're not on the hook. The systemically important banks are very well capitalized now and have limited exposure to these debts. Even if there are substantial defaults the big banks will be fine.

>SPVs that own the data centers

I mean if AI falls short we might see a collapse in the price of colo but those investments would probably just be paid back over 10x the period.

s/banks/private credit/

Looks like they applied this algorithm: All problems can be solved by another level of indirection.

Capitalists love to socialize losses

I'm in the US and I'm either getting NXDOMAIN or NOERROR (with no A record answer) back from every big nameserver I try (my ISP, Google, Cloudflare, etc.).

But a dig +trace archive.ph (which recurses all the way to the root locally) resolves it fine.

Is there some US-mandated DNS filtering I don't know about?

> These debts mean nothing if the US government actually views AI technology as being on par with the Manhattan project. They'll just bail them out or nationalise them.

According to Wikipedia, the Manhattan project only cost $28 billion in 2024 dollars. That's a completely different order of magnitude compared to what we're talking about here. I imagine the size of the investment here would even be hard for the US government to swallow.

If the US companies need trillions to barely beat Chinese companies spending billions, despite a multi year head start...

They'll bail them out with what money? US is already almost $40T in debt, how do you think the bond market would react if another $2T were abruptly added to it?

The advantages of being a reserve currency and then also blaming your peer competitors as “manipulators”.

If they bail them out it should be done like the GM bailout. Shareholders leave with nothing.

In other words, the US gov will simply put all the debt onto the public, as usual.

They can only do that if AI is profitable or at break even. Otherwise they would need to finance these companies yearly.

It's mostly for having lower debt-to-equity and higher equity multiplier (better stock price). And you retain your credit rating and can get cheaper debt.

But of course it is obvious in this scale. However, credit ratings do not care, as they are driven by regulation, and regulators get their paycheck regardless.

Also in the joint venture like Blueowl/Meta for the $27B Hyperion data center in the case when things go wrong Meta is in theory bankrupt remote. So in theory it should not affect credit rating because when the bad debt is not served, Blueowl, not Meta, is in the hook for it. And Meta's investors should be protected for this event.