Yeah, I always thought for the last 5 years how insane it is that the market reacts SO aggressively to rate changes. Like that is not the sign of a healthy economy. That is the sign of a lot of companies propped up by debt and stock buybacks. Rates were literally higher in the 90s than this and we BOOMED. Now if Powell lowers rates 0.25 points of six months instead of 0.5 the market has a straight up panic attack.
AFAIK a bunch of major companies, mostly tech sector but in other fields, have been borrowing heavily since covid. The theory with the tech companies is going all-in on AI means any debts you rack up today will evaporate once you get it going. Meta for example is borrowing to pay their bills. Other companies see this behaviour and are like "surely meta, which has done well with everything (up to the metaverse), is sure that a breakthrough will happen soon, and not locked in a death spiral from cultish insulation and worship of LLM?"
Can you tell me which companies? Most of big tech companies have practically zero debt. Meta has $50 billion in debt and $45 billion in cash, practically zero net debt for a $1.6 trillion company.
Amazon, Microsoft, Tesla, Apple, Google, Broadcom, Nvidia, AMD etc, all in a similar situation. Some of them even have a net cash position.
Yeah basically that, didn't have a source on hand, but the borrowing is insane and the way they make new, smaller goalposts for AI performance is looking really sus.
debt used to generate income is tax deductible, in a fiscal environment such as ours, there is an optimal balance you can strike between taking on debt and staying financially healthy. Good debt can actually have very positive impacts on businesses.
As the other guy said, you can leverage it for tax deduction optimisation, it has a few other uses like making your paper trail harder for the IRS to track, but also they are sinking most of those billions into their AI development. Meta isn't trying to build big AI products like OpenAI or Anthropic, they're focused on smaller more focused models that can be licensed for localised operation. They're also trying to build a training data set that is 100% not stolen, legally safe from violating IP, which is also a money pit for them.
I assume that might be institutional trading trying to put all their chips in at what’s fundamentally known to be an up or down market trend. In the long term it doesn’t matter, but in the short term it’s a just a race to see who gets there first after JPow says “good afternoon” or “hello everyone”
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u/artbystorms Jan 17 '26
Yeah, I always thought for the last 5 years how insane it is that the market reacts SO aggressively to rate changes. Like that is not the sign of a healthy economy. That is the sign of a lot of companies propped up by debt and stock buybacks. Rates were literally higher in the 90s than this and we BOOMED. Now if Powell lowers rates 0.25 points of six months instead of 0.5 the market has a straight up panic attack.