Market selloff, rising rates test AI data centre deal boom
reuters.com
reuters.com
Oracle's credit rating is hovering just above junk bond level. I think the capital agreements are similar to an Adjustable Rate Mortgage and monthly so if there's another rate increase from the Fed and Oracle can't find anyone to buy their bonds and/or their free cash flow continues to be negative then maybe that is a pin-prick in the stock bubble? Its sort of like if you keep bouncing around from 0% credit card offer for 12 months to another and then you stop getting 0% offers, then its time to face the music (those usually have a 3% transaction fee, at least a long time ago they did).
"Buy the index" isn't a solution for human influence and corruption, there are people in control of what goes into the index too.
If enough people try profiting by stealling pennies, the cumulative losses are significant; and can threaten confidence in and the strenght of the market.
It's a tool to payback original investors, and insiders using public excitement.
This can be seen very easily in the share of startups that the public gets any exposure to, during their growth phase. This has rapidly declined since those policies changed, and almost all growth is now only exposed to private lending markets. By the time a company IPOs now, it's the exit strategy, not the fuel of another growth multiple on the business.
I'm not sure if I can express how different the dot com boom era was to someone who didn't live through it. America Online kindasorta brought the Web to everyday people's homes around about the beginning of 1995, except that at that time everyday people didn't necessarily even have computers at home. Four years later we were almost living in a different world. Darn near every college student had a computer connected to the Internet in their dorm room. Every office worker had a computer on their desk and conducted at least some of their work in a Web browser. My grandmother was trying to chat me up on instant messages so many times per day that it was starting to get annoying.
It really was quite remarkable. Compared to it, the AI "boom" has been more like a wet diaper fart.
And the population at large really resents it. I have not talked to a person under the age of 30 and outside of tech who has anything good to say about AI. That's a group that doesn't vote very reliably but if AI concerns motivate them to do so, they could have an overwhelming impact.
In '93 people were still complaining that computers weren't bringing in productivity improvements (Solow paradox):
> You can see the computer age everywhere but in the productivity statistics.
The big change is that we now (due to the internet and interconnectedness of everyone) learn about the technology much faster than before.
But diffusion through business and population still takes time. Especially if there's a hardware crunch that acts as a brake.
I lived through the dotcom boom era (went online in '93 or so). If you can't compare that change to the magical science fiction we're living through (I can press a button, speak to my computer and tell it to build me a 3d game, then play through it 15 minutes later), I beg to differ.
(edit to add: not to mention the existential crisis many artists, developers and mathematicians are going through right now...dotcom was nowhere near that in terms of psychological impact)
Future is already here, it's just not evenly distributed (also said in '93, and I believe it's applicable again).
I don’t know if/when AI will ever become indispensable to normies but it’s clearly making a difference in fields that are highly technical.
The elephant in the room here is that these discussions are still happening at all. In 1999 there was no question of whether the web was going to completely reshape the world, because it already had.
I think we're probably more in the early nineties for AI, rather than the late nineties where everyone (for certain values) is getting some value from it.
The tech is definitely going to have a large impact, but the inherent limitations of it (stochastic and expensive) means that we'll need a bunch of downstream tools and deterministic software to make the most of it.
Which means that a lot of "value" is gonna get vaporised before we reach that point.
Posting this nice list of his failed predictions and bad analysis someone put together: https://danluu.com/zitron/
I think he's a broken clock that's right twice a day.
What Dan Luu is doing with that post is an act of misdirection (if not clumsy attempt at character assassination): avoiding the entirety of Zitron’s numbers and analysis (which can’t be refuted) and instead narrowly focusing on “predictions” that one can spin a hundred different ways.
If that’s convincing to the extent that you are dismissing Zitron’s numbers and analysis, you have a major critical thinking problem.
I like both Ed and Dan (for very different reasons), but I note that the financial side isn't really covered by Dan, and that's probably where Ed has been strongest (to the extent that much of the rest of the financial world is now picking up on it).
So I don't understand why there's fear and disagreement over a correction. Both sides should welcome it as there is some benefit to everyone. Well, most of everyone.
Not only is he not a shareholder, but based on his opinions, he clearly isn't a user of modern models either. Somehow he still thinks they are party tricks and that "They will never be AGI," with no elaboration on _why_ they _can't_ be AGI, and why that actually matters for these companies (hint: it doesn't really matter much. As it turns out, you could replace a lot of humans with a modern LLM and have a reasonable comparative advantage in doing so, even though the models are ostensibly not "AGI.").
His predictions have also historically just been bad (https://danluu.com/zitron/). Even AI 2027, which is basically semi-fictional, is more accurate and worth paying more attention to than this guy. And the superforecaseters which actually made AI 2027 and actual futurists are generally higher signal.
There's other avenues which are probably needed to make the cohesive AGI picture come true, such as World Models. Simply learning from text and being able to generate language is not, in my mind, the end-all-be-all for intelligence.
As I noted upthread, those predictions don't cover the financial side, which is where a lot of the issues currently are.
Like, LLMs/AI are definitely going to have large impacts, but those impacts will take a long time to materialise (outside of software, and even there we'll need much better tools to make good use of agents), and the financial investment are predicated on near-term returns from the tech that seem wildly implausible to me (and others).
The bunch of crypto miners getting multiple billion dollar valuations should be a clue here that all is probably not well.
And fundamentally, I don't see model building as a very good business. It's incredibly expensive, and it's hard to maintain the margin in a very competitive space. This is probably good for the world, but very bad for the investors into these model companies.
To me the AI stuff is scarily good now, don't see many software jobs holding up for long and other fields will follow, and he might be right about the financials but it doesn't change anything to me the AI is here, getting better and better and is going to take our jobs.
He is arguing financials and companies failing, but his followers see it as AI sucks and is all hype and nothing to worry about.
Idgaf if model building is profitable, the genie is t going back in the bottle and hoping it back in is definitely not the solution
They'll definitely change, but I'd be really surprised if people stopped hiring software engineers/product/data people.
The agents are useful to the extent that you can sense-check them, and that's a big part of what the humans do in this loop.
> the AI is here, getting better and better and is going to take our jobs
As above, I feel it probably won't take software jobs, but the situation in the rest of the economy is far worse. The labs simply cannot get the kind of data that they would need to train the models to do this.
Barring super-intelligence (which I'm not even sure is a coherent construct), I don't see how that happens.
Loads of stuff is gonna change, but it'll take longer than a lot of people around here expect (rather like the Internet did change the world, but the dot com bubble was still a bubble).
There are a bunch of ways that AI the technology could be massivly successful, while AI the industry crashes.
I suspect there people who are betting they can arbitrage them, such as getting an allotment of them and renting them out. (I'm not talking about the scale of a single card in your house, but in DC operators or those who have racks leased already)
Probably related, china banned imports of the 5090d in may.
- https://videocardz.com/newz/heres-why-rtx-5090-costs-5000-ai...
- https://videocardz.com/newz/inside-chinas-mass-conversion-of...
But also, it is. You can resell them.
I find it mind boggling that either AI is a bubble or AI is the next industrial revolution and no other options can be considered because reasons(tm).
Token costs are dropping, yes they are, but how much of that is better software and algorithms vs better hardware and that's too galaxy brain for the simpletons trying to predict what's next.
So what's next? IMO more tokens and lots of disappointment that more tokens alone neither cures cancer nor brings the apocalypse and further waves of innovation. AI continues apace.
Short term, AI is overrated. Long term, you ain't seen nuthin' yet... Now vote down that positivity, we're doomed! DOOMED!
Roughly speaking Paying $2T for even $65Bn _profit_ is a bad deal, historically speaking. (~30x P/E)
But also, ~20*$65B is ~1.3 billion and a healthy PE ratio just like Cisco. but that's not good for your narrative, is it?
Oh no! all those early founders who thought they'd be worth $3.8B will only be worth $2.6B! Whatever shall they do?
My narrative? What narrative is that?
and 30x 65 = 1950 which is pretty close to 2T.
I'm not sure what you're on about or if you're just taking the piss?
You guys never stop.
But 20 is a classical and fundamentally healthy PE ratio for a healthy business and that would value Anthropic at ~$1.3T if that's what you're getting at and the early employees would all still be billionaires.
Mind you, I hate both Anthropic and OpenAI for their conduct in this space, but I wouldn't argue with the numbers. I'd argue with the blatant fearmongering towards regulatory capture but that's galaxy brain nonsense I know.
This essentially means that it takes twenty years to recover the price through earnings. The US market has been super strange since the GFC, and with higher interest rates, I don't see these prices continuing unless the machine god is invented real soon.
No machine god needed. Just more applied AI and there's plenty of it clogged in the FDA pipeline already. That clog is more about the limitations of people and who they elect than it is about limitations of AI. I has fansee peehud 2 BTW. AI doesn't disgruntle me, but both sides of the AI psychosis coin sure do and that coin absolutely 100% has 2 equally ridiculous sides.
In the US market, with 4% of the world's population and 60% of equity value.
Even if it's been common for a while, just taking a step back shows you that it's a pretty wild metric.
> I has fansee peehud 2 BTW
I picked this username 15 odd years ago, not sure why you felt the need to call it out.
But the tech industry PE ratio is about 28. Since 30 is crazy, what's a reasonable PE ratio and when are you going to short the NASDAQ on margin and make your first billion, you market genius you?
IMO there's a silly agenda in play here driven by prominent influencers and notorious hedgers who were recently forced to buy calls on their favorite short (insert Nelson laugh). The financing thing will take care of itself in the long run just like the dark fiber did. And just like VC loses most of their bets and makes it up on the winners or we wouldn't have so many expensive houses in Woodside.
Rest assured that it did not, in fact, disabuse me of my belief that I’m at least partially successful in retaining a level head.
But it wouldn't be good for podcast culture, now would it?
But those data centers? Craters. Wouldn't be surprised if China buys them up for cents on the dollar and run expensive, polluting ops out of them instead of in China.
and then the finance paying workload never materializes?
so they just declare bankruptcy and what society just absorbs it?
Plus loan rates are high meaning rational people either pay less for, or completely avoid buying houses, cars, and all the things that go with (furniture, yard maintenance tools etc)
I was talking to a realtor I bumped into last month, he said that houses are staying on the market longer because sellers don't want to accept the offers they are getting. In some cases people are upside down or close to it.
It has been a long time since people have had to deal with the idea that their house will do anything other than increase in value. He said he thought up to a 50% "adjustment" in home prices is coming.
But if people start losing their jobs and cant/wont make the payments like in 2008 , could drop hard.
The big question then becomes: what is the market value of these things? Is it even positive? Creditors will eat the difference between that number and whatever they actually lent (less what they've been paid back so far, if anything).
If you had to redo one of the most expensive parts of laying all that track in order to use it, yeah.
Hardware that's specialized for building LLMs or for running LLMs isn't same sort of hardware you'd use to -say- serve up newegg.com.
US Producer Prices Up Most Since 2022 as Energy Pain Worsens - https://www.bloomberg.com/news/articles/2026-10-15/us-produc... - October 15th, 2026
CoreWeave Credit Risk Hits Record, Pricing 60% Odds of Default - https://www.bloomberg.com/news/articles/2026-10-15/coreweave... - October 15th, 2026
- The cost of protecting CoreWeave’s debt against default for five years rose by as much as 74.5 basis points to 1194.5 basis points, according to ICE Data Services. That’s the highest intraday level on record with swaps pricing in a more than 60% chance of default within the next five years.
- Meanwhile, some of the company’s bonds declined in the US junk market. Its 9% notes maturing in 2031 fell by about 2.5 cents on the dollar to 80.75 cents as of 11:00 a.m., pushing the yield on the debt to 15.3%, according to Trace. Its 9.25% bonds due 2030 dropped by about 0.75 cents to about 86 cents, pushing the yield to 14.3%. At the same time, some notes edged higher, with its 9.75% notes due 2031 rising 0.125 cents to 80.625 cents.
- “Debt investors are freaked out about CoreWeave’s cost of equity and equity investors are freaked out about its cost of debt,” said Bill Zox, portfolio manager at Franklin Templeton Fixed Income.
CoreWeave's Bonds Turn Distressed, Drawing 'Yikes' from Musk - https://news.ycombinator.com/item?id=50090791 - October 2026
- However, D.A. Davidson analyst Gil Luria, who has referred to CoreWeave as “the subprime tranche” of AI, warned on a podcast that the stock could go to zero if the AI funding boom falters and the company becomes unable to pay its expensive debt obligations.
- Luria told Bloomberg Television on Wednesday that CoreWeave was “destroying value at every turn” by borrowing at such elevated rates.
- “If CoreWeave is borrowing at 9% and the best return they can get off of that is a 5% return, it doesn’t matter how much they scale,” he said.
- “Borrowing at very high interest rates in order to build data centers that are increasingly commoditized outside of the hyperscalers may not end up being a good investment,” he continued. “The more leverage we use to build data centers, the more risk we’re bringing into the system.”
Monitor CoreWeave equity and debt pricing to understand where we are in the AI capital bubble cycle.
Similar stuff happened with the unsustainable computer-leasing mania of the late 1960s. The president had to get involved so that they would stop borrowing more and more cash. I don’t think they really can stop borrowing if other competitors keep throwing cash on the AI build out. No one wants to be left behind and therefore will continue borrowing - even with the rising rates.
It’s a tough situation for the FED to maneuver.
In this context, debt load and interest costs continue to increase due to bond market fundamentals while earnings are not.
Bloomberg: It Won’t Take Much to Burst the Stock Market Bubble - https://www.bloomberg.com/opinion/articles/2026-08-20/us-sto... | https://archive.today/O9sQE - August 20th, 2026
> First, the favorable impact of the artificial intelligence investment boom on economic activity and earnings will likely diminish significantly in 2027. That’s because what’s relevant for growth is how much investment is increasing, not its level. The increase in investment in 2026 will almost certainly be the peak. There aren’t sufficient resources — construction workers, electrical generation capacity, or chip manufacturing capacity - to increase investment by the same magnitude in 2027. Nor are the dominant hyperscalers likely to have the free cash flow and balance sheet capacity to sustain a bigger increase in investment in 2027 compared with 2026.
> Second, as the growth of investment spending slows, the growth in earnings of hyperscaler suppliers will falter, profit expectations will diminish and price-earnings ratios will shrink. The “picks and shovels” providers will suffer a double whammy - slower demand growth and profit margin compression. On the way up, higher demand leads to wider profit margins that sustain equity market valuations. On the way down, the outlook for earnings deteriorates quickly as the shortfall of demand relative to expectations is exacerbated by a collapse in profit margins.
> Third, as the investment cycle matures, the focus will shift to the returns that the hyperscalers are expected to earn on their massive investments. I suspect it will be difficult for the AI hyperscalers to generate sufficient revenue ($2 trillion or more per year) to generate the returns needed to justify an AI capital base that is likely to reach $5 trillion.
(I'd encourage you to read the entire piece, it was written by Bill Dudley, a former president of the Federal Reserve Bank of New York, and is too much to quote in its entirety)
That market is far bigger than the entire ad market put together, because its upper boundary is every dollar the world spends on white-collar payroll.
The value is the user data that collects overtime and using that to become sticky for customers
Most of the drivers right now of inflation are in-elastic demand. Raising the cost of borrowing, will not deter that spend.
What it will do, is actually drive up the cost of all business, and worsen employment simultaneously. You can typically see a rise in prices (inflation) following a rate hike. Even when it's needed to combat regular elastic demand side inflation, it takes time to have a positive effect. If the main driver of the inflation is inelastic, or rate insensitive as much of the driving force right now is, hiking rates will actually increase inflation.
The AI boom doesn't care what rate it has to pay, it will pay it, and keep driving things up.
What's needed is a significant policy shift, to make room in the markets again for things society needs financing for (ex. building homes, productive revenue generating businesses)
That's the point of raising interest rates. It's demand destruction. If raising interest rates didn't raise the cost of doing business, it wouldn't work.
>You can typically see a rise in prices (inflation) following a rate hike. Even when it's needed to combat regular elastic demand side inflation, it takes time to have a positive effect.
Are you sure it's not just reverse causation? eg. inflation has gotten so out of hand that bankers are raising interest rates to counteract it? After all, inflation isn't a random walk. If it's bad one month, it's likely to get worse the next, especially when central banks haven't raised interest rates yet.
That generally works, in sane markets, when the majority of the cause driving the increased borrowing and by extension inflation, is price sensitive.
What it seems we're seeing right now, is a very large drive that's rather inelastic, and almost ignorant of the price of lending.
It will drop consumer demand, but if consumer demand isn't what's driving inflation, inflation will continue to rise, while also adding additional costs on every loan.
People can't stop buying housing/food/groceries. AI companies won't stop buying compute. It's been shown heavily how many companies will continue to borrow vast amounts even as the cost of lending has increased in bond markets. Why would raising the base lending rate cause them to stop?
Perhaps a very large rate hike, that would break their existing loans, but at that point you're talking about everyone being out of a job, and the wider economy crashing.
To me this looks like a policy decision is needed, much as happened in the 70s, not a rate increase, to resolve the drivers in the debt markets.
Could be wrong, time will tell.
Now, I don't expect them to hike too much beyond what the markets price 1-2yr bonds at, that would, like you say do nothing as a lot of inflation comes from the oil disruption.
https://www.ustreasuryyieldcurve.com/
From a Savings Glut to a Savings Shortage - https://www.apollo.com/wealth/insights-news/insights/daily-s... - September 12th, 2026
Not investing advice, but you're potentially better off paying more towards the principal with excess cashflow versus waiting for lower rates that are unlikely to arrive.
What, exactly, are you just sayin'? Cause I'm having a stroke trying to parse your comment lol