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Will Bain (0:01)

Billions of dollars in borrowing to build out AI, but our investors' warning, enough's enough. It's World Business Report from the BBC World Service.

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Will Bain (0:28)

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Yeah, welcome to the programme. Let's kick off, though, with another bumpy day for shares in the world's biggest technology companies, as investors continue to ask a central question. It seems, who on earth is paying for the vast spending on AI infrastructure? According to the finance-focused US network, the NBC, 20 of the most valuable global AI and semiconductor stocks have shed more than a trillion dollars in value so far this week, with chipmakers like NVIDIA, AMD, but also Asian counterparts like Samsung Electronics and SK Hynix seeing falls in the value of their shares. Well, to dig in to what's going on in a bit more detail, we're joined by Mercedes Bent, co-founder of Premise Venture Capital in San Francisco, California, and Bill Blaine, who's going to be with us throughout the program today. Bill is chief executive of Windshift Capital. Welcome both to the program. Great to have you with us. Mercedes, do you want to kick off first of all then, what is the central concern or what are the central concerns, plural, for investors over the past few weeks about what's going on in a technology that the people inside it say is going to change the world?

Mercedes Benk (1:49)

Well, if we're thinking about AI, which is where I spend my time from an agentic technology perspective, I think the big question on everyone's mind in San Francisco is about this upcoming anthropic IPO that's reportedly rumored for sometime, maybe November, sometime in Q4, and the big question is, how is it going to fare when it actually goes out?

That in addition to the sell-off, I think rates pulled back a little bit at some of the banks on private sites today. I think people are wondering, is the economy as strong as everyone thinks it is, or is AI going to continue to deliver, or are we at a peak in a bubble?

Will Bain (2:27)

Bill, what's your take on that? How much of it is sort of economic factors? So things like inflation potentially driving up high interest rates, always often bad for stocks and share markets around the world, right? How much of it is AI-specific and debt-specific, do you think?

Bill Blain (2:42)

Okay, so I've got a slightly different take than Mercedes, and I always don't listen to the narrative in the stock market, look at the bond markets, because the bond market reflect the reality of the economy, as you say, inflation. And the core thing to look there is CoreWeave, which I reckon is going to be the first of the big companies in the AI bubble to pop.

Will Bain (3:04)

Well, do you want to break down who they are, first of all, Bill, and then let's get into that?

Bill Blain (3:07)

Well, they basically have spent, they have borrowed $50 billion from the market, which they've invested in very expensive NVIDIA chips and building data centers, which they then rent out to the hyperscalers like Microsoft and OpenAI.

But they now owe so much money, and the cost of that money is rising as interest rates rise. And as a result, the market is now pricing a 60% chance that it defaults. And we see that in what we call the credit default swap markets. And this is exactly the same thing we've seen throughout history in 2008, when it was the banks that started to go. Remember, Lehman Brothers was the big moment, and the.com bubble before that. Eventually, the debt markets will cause something to break. And I would advise everyone to watch CoreWeave. It's the first one that's going to tumble.

Will Bain (4:02)

Mercedes, they've been a fascinating company throughout because of not just what they do, so the scale of these chips within there, but the fact that they were sort of a start-up in that space, and also who invests in them. So not only are some of these people their customers, but as Bill was sort of outlining there, they're kind of interlinked as well. So the likes of NVIDIA, the chip maker, whose chips they buy are also an investor within them. Is that what adds to the worry? I want your thoughts on what Bill was talking about about the scale of their debt as well, but also the interlinked nature of all of these companies. Is that what's sort of driving the market concerns?