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I suggest looking into “EQL”, or better yet, just replicating its index by taking a position in the 11 XL* sector funds from SPDR, allocating equal weighting to each. One will end up with one’s equities equal weighted by sector and with plenty of large cap exposure, as opposed to the pronounced mid-cap tilt found in whole market equal-weight strategies.

Personally, I drop the financial sector entirely (Thomistic prohibitions on usury) which leaves an even 10 funds which is easy to allocate mentally and in practice. For example, assuming a 60/40 allocation where one is holding the lion’s share in equities and the remainder in bonds (I substitute with a combination of gold, crypto, cash, and Swiss Franc here), one would allocate as follows:

XLC 6% XLY 6% XLP 6% XLE 6% XLV 6% XLI 6% XLB 6% XLK 6% XLU 6% XLRE 6%

(Note that XLF is consciously not taken as a position here, decide if it’s right for you. The Mortgate REITs which would make XLRE problematic are in XLF per the sector selection rules)

The remaining 40% is bonded debt if you are fine with usury, or some sort of asset negatively or neutrally correlated to equities.

It’s an interesting thought. The growth is so extreme that if the S&P 500 fell 50% today it would reach levels last seen in 2022. Given that the timespan is so short, I’m honestly not sure it would be as bad for 401ks as people expect unless all of your investment was concentrated in the last 4 years.

I suppose it’s worse if your calculation is, “I’ll retire when my 401k hits $X absolute value,” but I think most people just retire at a certain age instead with risk spread across decades.

NVidia makes up 7.5% of the SP500. If it lost 50%, it would be a 3% loss for the index. The concentration is bad, but it would not cause a drop of 50% retirement funds by itself. If you take an all world index, it's even less.

Still, if NVidia lost 50% of their market share, we would probably see a big collapse of the stock market.

EDIT: to note, the top ten companies in SP500 make up an unprecedented concentration but they're not "mostly AI".

Even if theres a massive drawdown it will recover in the medium term (and in the short term is a great buying opportunity).

For the people who are close/early to retirement and can't do that, well, they need to manage sequence of returns risk.

Edit: I think some ppl might interpret this as me being bullish on the SP500. I'm not, I'm bullish on everything evens out and returns to the mean.

I don’t think concentration risk is itself overly concerning. The nature of a market cap weighted index means it will always be heavy on whatever is currently trending. You’ll certainly be hurting if your plan is to retire at the top of the market with just enough, as the inevitable downturn will hammer your portfolio down into not enough. So invest until you have enough to handle volatility or a lost decade with a dip and slow recovery.

For those who stick to a meaningful asset allocation (e.g. 60/40, 80/20, etc), this does not pose significant problem -- they would not be buying much stock in the last 3 years. Instead, they would be buying mostly fixed-income. Probably mostly in 401k/IRA accounts.

There is no data showing that high concentration is bad in an index.

No correlation with future returns.

On the other hand the world is leveraged to insane levels not seen since world wars or global recessions.

At the same time yields are low while inflation is high.

There is definitely a high level of risk in the financial markets.

A risk nobody, especially politicians, want to look at, because it would unavoidably lead to some major pains, so procrastinating until it's unavoidable seems the way to go.

I'm not familiar with 401k rules but presumably they get a choice of markets and products?

If one is over concentrated its easily avoided.

retirees arent suppose to have their active retirement funds in stocks dude. Any financial advisor with a brain would not make such a ridiculous asset allocation error.

Retirees relying on short term equity returns to cover expenses only have themselves to blame.

Yes of course life insurance and pension funds are going to buy this debt. This is the highest quality debt that's out there. If you don't want life insurance and pension funds to buy debt from big tech companies because you believe it's too risky, then you believe that bonds are just too risky in general.

Are you suggesting that holding private credit assets is relatively risk free?

Equity is a risky asset, so equity being wiped out should not be a surprise to anyone, but life insurance and pension funds failures is indeed a public problem.

You probably meant to say that practically, high leverage tends to leak into companies of public interest. For example, when high net worth individuals start trimming their private credit holdings, which eventually end up with insurers. That is why the regulators have to watch carefully that it does not happen.

> 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?

Which routed those funds through the economy's financial circuit and caused ZIRP, inflation in asset prices, and the evaporation of risk premiums.

But the pendulum swinging rapidly to the other side has routed all those funds through the real economy, caused goods inflation, and looks like it will crash the economy.

This "debt" is almost solely rental style deals with datacenter constructors. If you make 200k and have a 400k mortgage youre doing just fine.

There are many reasons to use subsidiaries for things like this, like to invite outside investment, ringfence risk, cede operational risk, and many more.

This is all like CFO 101 type stuff, and not nefarious. I find it amusing that people assume the worst for things they understand little about, rather than trying to learn.

Maybe the best way I can explain it to the programming crowd is this: imagine how ridiculous it would sound if outsiders were saying that Google was on the verge of collapse because its codebase has billions of lines of code.

> is they are trying to hide the debt.

They aren't hiding it though. The contracts are recorded in regular filings.

Because they have even more debt than the debt we assume they’re trying to hide

they aren't trying to hide anything, those are accounting rules that are applied to the letter. I'm feeling like I'm taking crazy pills whenever I see this stuff about AI, your hate boner for a specific technology shouldn't trigger you saying things that are provably untrue.

It's not hidden at all. Financial blogs very accessible to laymen like Matt Levine's Money Stuff have talked about this structure months ago. If you are an investor and surprised by this news you weren't sufficiently prepared and shouldn't have been investing in the first place.

Take-or-pay contracts appear as "contractual commitments" in 10-K. They are not hidden. That's the way they are reported in all industries where take-or-pay contracts exist. There's nothing nefarious about it.

They're not jumping through any hoops, I think they're simply complying with reporting requirements. It's not on their balance sheet because being recorded as strait debt would itself be misleading. My understanding is that these sort of off-balance sheet "debt" is mostly in the form of deal terms that may or may not be expressed at some point in the future.

An analogy that comes to mind is when companies used to book future sales in the present. They got in trouble for this and is now forbidden. I recall reading that one deal had terms that transferred assets if certain conditions were not met. If terms-based debt should be booked now, then terms-based assets should as well. This stuff makes my head hurt.

Either way, as long as it's not hidden (and it's not for the public companies), then it's fine.

Because this isnt actaully debt. Almost all of it is agreements to pay for completed datacenters from developers. Its just a way to offload operational risk when constructing datacenters. If the construction somehow fails theyre not stuck with the bill.

You couldn't just characterize them that way, they are using literally the exact same setup that Enron did in order to hide the massive amount of debt and liabilities they had that eventually sunk the company. People jumping in to defend this as being totally legit or not-fraud seem quite insane to me: companies should not be trying to hide these things to pump up their stock prices or to entice investors that otherwise might not see it.

> In an era where AIs move millions upon millions of dollars around because of some blip of a headline somewhere [...] I'm not sure what's broken.

I think there is some sort of collective collusion. Like a school of fish moving. If there is an external stimuli the price can rise or fall eventhough it doesn't make sense from a 10y dividend perspective.

One of Meta's SPVs building a data centre for them, Meta own only 20% of it; 80% is owned by other investors. That's the issue here; the market thinks that only these handful of money-go-round FAANGs/Mag7 companies, are exposed but analysis shows that SPVs are spreading really significant risk to many more investors.

That's their quarterly profit.

Here's the un-paywalled version: https://archive.is/20260722205736/https://asia.nikkei.com/bu...

Probably - The issue is more about terms-of-service and whether any company wants to go to bat on a years-long legal battle over this issue

The problem is that if the AI companies pass through the actual costs they're incurring, then charges to those companies will >10x.

If the companies don't see that kind of value (so LLMs don't become dramatically better in some kind of quantum leap from where they are now), they won't want to pay those costs. Already, most AI projects in corporations tend to fail.

If the efficiency of LLMs gets 10x better, then either corporations will "private cloud" their own AI or start using competitors that aren't carrying those kinds of debt loads from the "gold rush" phase.

If it's efficient enough you just run it all locally & screw all the rent seekers who want to tell you how you can't use their model & who will sell and misuse all your data they capture.

If apple puts an inference SOC in their phone, the datacenters are all dead.

https://en.wikipedia.org/wiki/Jevons_paradox

Given how heavily subsidized it is at the moment, the efficiency isn’t as important. Typically efficiency would give you more at lower cost, but with token prices so removed from actual cost that plays less of a role here.

They improved the efficiency of coal?

The (any!) comparrison to photovoltaics is not acurate.Photovoltaics (PV) are primary energy producing infrastructure that produces its own fuel and is now verticly integrated into it's own supply chain, nothing other than life itself posseses this atribute. AI, is exceptionaly likely to work in exactly the opposite fashion and take its host out as it goes down.

This is going to sound a bit facetious, but I'm almost certain the Gmail / maps integration on my Samsung galaxy in 2014 did that.

You do realize "subsidizing" means charging less for something than it costs to provide, right? So they'll lose a dollar on every sale, but they'll make up for it in volume? E2E is usually where the profit comes from. If they're subsidizing getting regular users on board (pro/plus/max), and they're subsidizing to get businesses on board (massive deploys), where can the profit possibly come from without a pricing rug pull?

I read somewhere that the memory companies were massivly pushed for lowest prices especially by companies like apple.

I want to hope that this money will lead to more capacity, more R&D and lower prices in the long term again.

Nvidia would have changed its GPU strategy a long time ago if the demand wouldn't be real. They still can afford the GPU prices. But memory is not a monopoly.

For memory though i do assume a lot more people and companies want a massive amount more memory than ever before. I have 64gb in my pc for a few years now, i was quite happy with that. It became a no brainer. But today? Hey give me 100, 300 and even more. I really want to run bigger LLM models locally.

If hyperscalers flop, and there’s a good chance they will, memory and disk prices will crater. They are historically the most volatile asset in tech. If Samsung, Micron et al can’t sell to hyperscalers they will switch back to consumer, because they can’t just turn off a memory fab without losing billions.

Yes that is unfortunate for sure don't get me wrong this affects me but the overall benefit will still be bigger i assume.

10 years ago i watched a talk about the problem of compute vs. memory. Compute increased significantly while memory speed did not.

This gigantic investment will solve this problem.

So either this blows and we will have way too much capacity which will lead to cheap and mass amount of memory for everyone + cheap GPUs again OR AGI. So win - win.

Here in the US "let them fail" only happens to businesses without political pull, which I'm pretty sure these companies have.

Some dollars are more equal than others you know.

Except this is not how American capitalism works at this scale, and it’s ridiculous to think their debt isn’t your debt when you have the entire country’s history to look back on and count the numerous government bailouts.

Do you think the businessmen who sat on the dais at Trump's inauguration plan to just fail without getting him to put his small thumbs on the scales?

Luckily so far only one index changed its rules to cover SpaceX and what the AI IPOs would need.

I don't know how specifically significant SpaceX being lower than at launch is, because actually most IPOs underperform the market and their own targets for the first three to five years. What is happening to it is not that unusual; its overvaluation is.

I do think there is a major risk here, and ordinary investors and pension holders will be hurt.

I am not sure any individual AI company is too big to fail, though probably one of the big two will be rescued, most likely Anthropic. I think OpenAI will fail, and it'll be stripped for parts. As will Oracle, who are overexposed to it.

Thats a Elon Musk / Space-X issue thought not a Google and co issue.

How much real impact is this really though?

> Oracle might ge the first to collapse if things go south ...

Truth be told ORCL already kinda went south: they're down 65%, at $120, compared to their all-time high.

In mice! It's already factored in to the price.

We also may be at the wealth inequality level where prices become… weird.

If there is really only a few dozen people doing the buying and the selling at the top on a weighted basis, then the prices are whatever they convince themselves of.

SpaceX is already 3x as expensive to short as the next biggest megacap. Good luck everybody.

What is that company?

Ummm, whose that?