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4w ago on

𝗔𝗜 𝗰𝗮𝗻 𝗯𝗲 𝗮 𝘁𝗲𝗰𝗵𝗻𝗼𝗹𝗼𝗴𝗶𝗰𝗮𝗹 𝗿𝗲𝘃𝗼𝗹𝘂𝘁𝗶𝗼𝗻 𝗮𝗻𝗱 𝗮 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗯𝘂𝗯𝗯𝗹𝗲 𝗮𝘁 𝘁𝗵𝗲 𝘀𝗮𝗺𝗲 𝘁𝗶𝗺𝗲. I think we need to distinguish between the technological success of AI and the financial success of the companies financing it. Because these are two very different things. 𝗪𝗵𝗮𝘁 𝗰𝗼𝗻𝗰𝗲𝗿𝗻𝘀 𝗺𝗲 𝗺𝗼𝘀𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗴𝗿𝗼𝘄𝗶𝗻𝗴 𝗰𝗶𝗿𝗰𝘂𝗹𝗮𝗿𝗶𝘁𝘆 𝘄𝗶𝘁𝗵𝗶𝗻 𝘁𝗵𝗲 𝗔𝗜 𝗲𝗰𝗼𝘀𝘆𝘀𝘁𝗲𝗺. Hyperscalers like Microsoft, Amazon and Google invest billions into AI companies. These AI companies then spend billions buying computing capacity from the very same hyperscalers. So money effectively flows in a circle. And there is another interesting dimension: as private AI valuations increase, some of these investments may also generate unrealized accounting gains among hyperscalers (disclosed as "other income"). In fact, according to recent research by Jefferies, the increase in hyperscaler non-operating income has been roughly as large as the increase in their reported net income. That certainly raises questions about earnings quality, although it doesn't prove that all these gains are AI-related. 𝗧𝗵𝗲 𝘀𝗲𝗰𝗼𝗻𝗱 𝗰𝗼𝗻𝗰𝗲𝗿𝗻 𝗶𝘀 𝘁𝗵𝗲 𝗲𝗻𝗼𝗿𝗺𝗼𝘂𝘀 𝗿𝗲𝘃𝗲𝗻𝘂𝗲 𝗯𝗮𝗰𝗸𝗹𝗼𝗴. The major cloud providers have accumulated around $2.3 trillion in remaining performance obligations, or RPOs. That sounds fantastic. But RPOs are promises of future business, not cash in the bank. And according to Jefferies' estimates, roughly half of that backlog depends on just two companies: OpenAI and Anthropic. Both are still burning cash and revenue growth has started to stagnate because of token price deflation. So the crucial question becomes: who's ultimately going to pay for all this computing capacity? 𝗧𝗵𝗲 𝘁𝗵𝗶𝗿𝗱 𝗰𝗼𝗻𝗰𝗲𝗿𝗻 𝗶𝘀 𝘁𝗵𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴. Hyperscaler capital expenditure is approaching $1 trillion annually, while returns on invested capital and free cash flow are under pressure. Increasingly, that investment is being financed through debt and long-term obligations. And that's where the macro risk comes in. We've seen this before in different forms: in 1997, in 2000, and in 2008. The technology or the underlying economic opportunity doesn't necessarily disappear. But the financing model can break. My biggest concern is therefore not that AI demand collapses. It's that credit markets eventually question whether the cash flows can justify the capital invested. And when that happens, a technological boom can quickly turn into a financial bust. I have seen this movie before. I have studied books by Kindleberger, Reinhart & Rogoff and various other financial history literature. My personal base case is that we are moving towards THE BIG PRINT (h/t @LawrenceLepard ) sooner than most analysts dare to admit. The timing is the most important element but I do personally believe that the highs in the AI trade are already behind us and that #Bitcoin may be sniffing out the ink already... Stay humble and stack Sats, André