The US equity market is betting everything on one story:
- Nearly 40% of US GDP growth this year comes from AI.
- According to Morgan Stanley, “roughly 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital expenditures growth” can be attributed to the AI data center build out.
- AI companies hold $1.2T in debt, the largest segment in the investment grade market.
- Nvidia, Microsoft, and Apple now account for over 20% of the S&P 500 index.
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Approaching the level of the 1.5 trillion dollar subprime mortgage debt at the height of the real estate bubble and close to the level of the telecom debt before it collapsed in 2000-2001.
By 2002, the telecommunications industry's total debt was estimated at around $1 trillion, after having spent nearly half a trillion dollars on network buildout between 1996 and 2001. By 2001, much of this had become unsustainable, leading to the collapse of the telecom bubble.
Key figures related to the telecom debt and spending around 2001:
- $1 Trillion in debt: According to testimony from Federal Communications Commission Chairman Michael Powell in July 2002, the industry's debt had reached a trillion dollars, with much of it expected to be written off.
- Nearly $300 billion in US debt: The US telecom industry's debt reached nearly $300 billion by 2001. Much of this was accumulated as firms spent excessively on building new networks during the late 1990s.
- Hundreds of billions in investment: From 1996 to 2001, the telecom industry spent over $444 billion on capital expenditures to build out network infrastructure.
- Billions in bankruptcies: As the bubble burst around 2001, dozens of telecom companies filed for bankruptcy, with publicly traded firms listing tens of billions in assets.
- Individual company debt: The debt for some companies became staggering. In 2001, AT&T's debt ballooned to $65 billion as it built its cable television business.
The massive increase in debt was driven by:
- Overspending on new infrastructure during the dot-com and telecom boom.
- Excessive bidding on spectrum auctions, such as the costly 3G auctions in Europe.
- Company failures that were driven by aggressive accounting tactics and misclassification of expenses, as seen with WorldCom's eventual collapse.
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