Debt Driven Difficulties
Most investors started October optimistic the worst in dislocated market price action was left behind in Q3. Unfortunately, the opposite has ensued in October, which has featured violent technical and sentiment driven price movements impacting nearly all corners of the market.
The view
Debt Driven Difficulties
The issue presently is not about AI winners or losers, competition from frontier labs, data center pushbacks, or the existential fear that AI will takeover our jobs and/or civilization.
Setting aside these various worries, we have a much more simple problem on our hands which is that funding for AI has finite limitations. The arms race to build the biggest compute footprint started with free cash flows and has now swiftly evolved into a debt story.
Aggressive capital raising by hypserscalers is now destroying their balance sheets, crowding out sovereigns and other corporates in the fixed income markets, driving up interest rates and causing corporate credit spreads to widen.
Playing with debt is a dangerous game as manias can swiftly turn into panics when credit deterioration leads to ever tighter financial conditions across the economy.
This commentary is for informational purposes only and is not a solicitation. Past performance is not indicative of future results. Opinions expressed are those of Masterpiece Advisors, LLC as of the date of this commentary and are subject to change.
Weekly market notes every Friday from Aaron Sweeney after the closing bell.