These companies have valuations reflecting a debt light business. At a minimum, 420 billion in debt is enough to change the stock price by 10-20%. If the company plans to add another 400 billion in debt you need to give it the side eye.
If 50 billion in revenue is from other companies debt spending… then You have a problem.
> If 50 billion in revenue is from other companies debt spending… then You have a problem.
we may have a problem then.
> These companies have valuations reflecting a debt light business.
Sorry, but this doesn’t make sense. The valuations of these companies reflect their growth.
In finance there’s nothing inherently virtuous about a “debt-light business”. It’s all an allocation decision based on how you expect to grow relative the cost of that growth.
Try and reframe it: are cash-heavy businesses given a premium?
Growth of what exactly? AI doesn't have the normal leverage factor that software usually does where a simple codebase can drive a billion dollars of subscription revenue with 90%+ gross margin. There's no eventual state where the capex is in place and the margins flip. They're in the datacenter business, which is real estate, with tenant improvements consisting of rapidly depreciating/obsoleting equipment. These margins have no path to flip around and allow for a huge amount of revenues to flow through. If they start testing price sensitivity in the way that would justify the valuations, it will just accelerate the transition of AI from datacenter to local.
>Experts continue to warn of an AI bubble, noting the enormous and widening gulf between company valuations and their comparatively measly profits
The pertinent comparison in valuations is debt vs equity, not debt vs cash as you noted.
My point was more of an exercise to point out that finance is about mutating resources. A lot of cash can be a good thing or a bad thing. Same for debt. There’s nothing inherently bad about levels.
> These companies have valuations
By the time we're reading headlines about this debt, it has been known to institutional investors for a long time.
The debt is priced into the valuation.
There was an article on Hacker News just the other day explaining that no one knows what the value of these used GPUs are going to be and that people underwriting are just, essentially, just guessing.
Here is the link (oddly I could not find it with HN Search): https://news.ycombinator.com/item?id=48917135
Ooh look! “The x is priced in”! My favourite financial thought terminating cliche!
No need to worry or discuss further, it’s all priced in! Everything’s totally fine!!