It is true that AI companies nowadays have proven track records of growth and cash-flow generation, which was not the case in the late 1990s. For example, hyperscalers, such as Alphabet, Amazon, Meta, Microsoft and Oracle, now generate a combined US$692.291-billion in trailing twelve-month operating cash flow, reflecting a 29.69-per-cent annual surge and a June over March quarterly growth of 5.18 per cent.
But the other argument that proponents of a bull AI-driven market bring forth - namely, that these companies have solid balance sheets - is questionable. What we have now is companies that used to be light capex (capital expenditures) are becoming heavy capex, and companies that used to have little or no debt are now heavily indebted. A wave of debt raising by tech companies investing in AI has blanketed the private and public debt markets.
But it also goes beyond this. For example, anchoring the aforementioned financial performance is US$2.3375-trillion in Remaining Performance Obligations, or RPO - which is the value of contracted deferred and unbilled revenue expected to be recognized, a massive backlog that continues to underpin the credit profiles of these market leaders.
Opinion: Why the bursting of the Al bubble would be a much more worrisome event than many people think
It seems that debt and equity markets remain eager to underwrite nearly any expansion project related to AI. The overarching long-term risk is not a sudden lack of solvency, but a fundamental capital degradation fuelled by a relentless infrastructure race that is powered by the thirst to raise capital quickly.
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