Written by: thiigth

Wall Street veteran Howard Marks of Oak Tree Capital recently said something eye-opening. The gist is: if this AI frenzy doesn't end up being a classic bubble burst, it will be the only exception in the history of human finance.

But the problem is that the vast majority of people are looking in the wrong places.

We are still debating whether Nvidia's stock price is too high or who could be the next Cisco. Everyone is fixated on every fluctuation of the candlestick charts, trying to find clues of an impending crash. However, the real eye of the storm is not in the bustling stock exchanges, but in that silent, hidden corner that determines life and death — the credit market.

This is not a math problem about price-to-earnings (P/E) ratios, but a gamble built on massive debt.

01 The Disappearing "Cash Cow"

In this story, our biggest illusion is that tech giants are as rich as countries. We think they are casually using their spare cash to reshape the world with AI.

But the numbers in the books reveal a completely different reality.

Let's turn the clock back to before ChatGPT exploded onto the world stage. At that time, Microsoft was the most reassuring "cash cow" on the planet. Its cash was 30% more than its debt, as stable as a rock. But just a few years later, to feed the insatiable AI, the situation has fundamentally reversed: now, Microsoft's debt exceeds its cash by 20%.

Meta (the former Facebook) is even more exaggerated. In 2022, Zuckerberg had three times the cash compared to his debt; by last quarter, his debt had surpassed his cash reserves by 15%.

Amazon, which has always loved high leverage, now has debt that is 50% more than its cash. As for Oracle, the once cash-rich software empire, it now not only faces tight cash flow but also carries a mountain of debt.

In just four years, the giants of Silicon Valley have changed. In pursuit of the elusive "Holy Grail" of AI, and to avoid being left behind in the next industrial revolution, they have not only drained years of savings but also staked their future income, signing massive promissory notes.

02 The "Development Project" That Cannot Be Abandoned

This is not just a matter of money; it's a story about "having no way out."

Recall the 2008 subprime mortgage crisis. When housing prices collapsed and pockets were empty, heavily indebted homeowners made a painful but rational decision: they threw the keys to the bank and walked away. This is personal default — leaving the mess for the bank while life must go on.

But in the game of AI, there is no option to "throw the keys to the bank."

Microsoft, Oracle, and Meta are not like homeowners; they are more like developers who must complete their projects. When they sign hundreds of billions of dollars in chip contracts and stake the first pile for server farms in the wilderness, they have signed a "blood oath."

If credit tightens tomorrow and they can't borrow money, can Oracle point to its half-finished data center and say, "I'm out"?
No.

Because these unfinished products are not only worthless if left incomplete, but they also face huge penalties for default, which means an instant collapse of core competitiveness.

So, even if there is a pit of fire ahead, they must grit their teeth and continue to burn money.

This is a typical debt trap: regardless of whether AI can make money now, you cannot stop. If you stop, the hundreds of billions previously invested will instantly become worthless;

If you continue, you need a continuous influx of credit.

This is why the AI bubble is scarier than the stock market bubble. If the stock market crashes (like in 2000), it merely means everyone's wealth shrinks, and life gets a bit tighter; but if credit collapses, causing these giants to be unable to borrow money to maintain infrastructure, that is cardiac arrest.

03 Fear is the Highest Form of Leverage

Why have these exceptionally smart CEOs collectively pushed themselves into this corner?

Because of fear.

This is not just greed; it is a deep-seated anxiety for survival. At the crossroads of technological change, not participating means death. If you dare to sit on the sidelines and watch, you are destined to miss the next great age of exploration. To stay at the table, the giants have no choice but to borrow and bet.

Thus, we see this enormous two-way gamble:

If AI succeeds: This may take 6 to 10 years of endurance. But during this decade, companies must carry heavy interest burdens, and the money that could have been used to develop new products must go to repay debts. This will make once nimble tech giants become sluggish.

If credit collapses first: Before AI can truly make big money, if banks feel the risk is too high and tighten their purse strings, then this business loop built on borrowing will snap like a taut string.

The current tech circle is like pouring gasoline on a smoldering fire. On the surface, we only see the stock market's revelry, but underground, the accumulated debt fuel has seeped into every inch of soil.

04 The Endgame

Most investors think: "I'm smart; I can run away before the bubble bursts."

This is a classic survivor's fallacy. Everyone fantasizes about cashing out at the peak, buying government bonds, and then sunbathing on the beach.
But history never plays out this way.

It's like riding an escalator up — smooth, comfortable, and lulling you to sleep; but going down often means you are thrown directly into the elevator shaft. When the heavy door of the credit cycle suddenly closes, everyone is squeezed onto the crowded track — that is, among those few core tech stocks — and the exit will be instantly blocked.

So, stop fixating on whether Nvidia's stock price will rise or fall tomorrow. The real risk lies in whether the credit foundation supporting all this prosperity remains solid.

When Microsoft starts operating like a highly leveraged real estate developer, we should wake up: this is no longer just about tech dreams; it is a brutal story about how to find a glimmer of survival in a quagmire of debt.

This article is based on content from the Eurodollar University podcast and is for reference only, not constituting investment advice.

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