The AI ​​panic has subtly shifted from employment issues to a credit crisis.

Author: Reason, Hedge Whale; Source: X, @chenreas on

The AI ​​panic has subtly shifted from employment issues to a credit crisis...

This is just the beginning of the trouble.

This crisis can now be summarized as having **three main threads** unfolding simultaneously. 1. AI has suddenly strained the cash flow of many companies, making it difficult to repay and renew loans. Many industries, especially software, consulting, outsourcing, and real estate services, have traditionally relied on selling labor, subscriptions, and services to generate revenue. Once AI automates some tasks, clients will cut budgets, lower prices, and postpone contracts. The stock price decline is merely an emotional factor; the truly critical issue is that the software industry accounts for a high percentage (nearly 16%) of the US leveraged loan market, but the quality of these loans is generally low. Many of these companies rely on borrowing for expansion, buybacks, and mergers, and these debts need to be renewed when they mature. If the market becomes even slightly cautious, renewal rates will rise, terms will become stricter, and renewals may even become impossible—this is the starting point of credit risk. 2. AI requires massive borrowing and rapid, asset-heavy development. AI is not pure software; it is actually an infrastructure that requires significant capital investment, including numerous data centers, servers, networks, and power connections. This process involves huge capital expenditures, much of which is not generated from current profits but through external financing such as bond issuance, loans, and leasing. Thus, a combination emerges in the market: rapidly deteriorating cash flow from existing businesses coupled with the need to borrow even more money to build new businesses. Even if economic data is relatively good, the credit market will tighten first, fearing a break in the cash flow chain. 3. However, risks often first appear among unseen intermediaries before spreading to the macroeconomy. Ordinary people tend to focus on the giants, but credit pressure is more likely to ignite first among intermediaries. There are roughly three types of intermediaries: First, companies that build data centers, provide power, cooling, and engineering services for AI systems; their projects are long-term, with slow returns and high leverage. Second, data center operators/developers who rely on a few large clients; their client concentration is high, and order cancellations are very problematic. Third, companies that take out floating-rate loans; their cash flow is squeezed the fastest when interest rates rise. If defaults, failed refinancing, or asset price declines occur in these areas, it will spread through banks, funds, private lending, and other channels, ultimately leading to a broader tightening of financial conditions—a macroeconomic problem. The seemingly calmest moments in the credit market are often the most dangerous. When interest rate spreads are low and financing is easy, everyone pushes leverage to the limit. When a trigger point appears, such as a downward revision of profit expectations or project delays, liquidity can suddenly collapse, and prices can plummet much faster than you expect. On one hand, Google and Oracle are issuing massive amounts of bonds, which are being snapped up by everyone. On the other hand, stock prices in the software, real estate, insurance, and wealth management industries are plummeting. The pressure is slowly building until the most vulnerable parts can no longer hold on.