I have a lot of concerns about Artificial Intelligence and its potential impact on many aspects of humanity. But for today, let’s focus on the biggest, most direct, most immediate one — the AI buildout’s potential to cause a financial crisis even bigger than the subprime loan implosion 20 years ago, writes Nilus Mattive, editor of Safe Money Report.
Most people, including the Wall Street establishment, continue telling us everything is fine. This is exactly what happened last time even though the signs of recklessness and accounting trickery are all around us.
For example, Broadcom Inc. (AVGO) just announced a new agreement to loan Anthropic $42 billion to lease its chips. And it is reportedly trying to raise an additional $60 billion for the same purpose. That’s as much as $102 billion in loans and leases from a company that is only expected to generate about the same amount of money in sales this year!
AVGO (Blue), AMZN (Red), MSFT (Green) - YTD % Change
Source: TradingView
Yet the deal comes hot on the heels of similar arrangements that Anthropic already has with Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT). Indeed, the so-called “Magnificent 7” companies are spending money hand over fist in a race with each other to get as much computing power as possible. Meanwhile, the chipmakers receiving a lot of this spending are also plowing it back into AI infrastructure through various loans, investments and acquisitions of their own.
Subprime mortgages were bundles of loans made on overinflated houses to borrowers with uncertain futures. These new private credit AI loans are made on rapidly depreciating data centers to borrowers who may not make enough money quickly enough to justify the loans in the first place.
So, if the AI buildout fails to produce massive amounts of cash flows and profits…or if investors simply start to question whether it will…this whole thing could blow up quickly. The AI buildout has basically been our country’s only economic engine over the last few years, too. If the AI buildout merely sputters, so does the American economy.
It’s an all-too-familiar script, one that Martin and I saw play out in real estate almost two decades ago…and in tech stocks a decade before that. We warned repeatedly then, and I will continue to do the same this time around.