AI Demand Isn’t the Problem, Funding Is! What This Week’s AI Headlines Really Mean

This week the AI trade wobbled, but not because demand dried up. The suppliers say there is still more demand for compute than they can supply. What has changed is the cost of financing the build-out. 📉 The week in four headlines: KOSPI down 6–7% on Tuesday, Shanghai’s STAR Market more than 30% off its July peak, the US chip index on course for a sixth straight fall, and Firmus pulling its A$5bn+ AI data-centre IPO. 📉 Wednesday in New York, the bill arrives: core CPI came in hot at 0.3%, the odds of a Fed hike jumped from 22% to 33%, CoreWeave fell 16% and Oracle 9%, and the cost of insuring both companies’ debt hit record highs. 🗣️ What the suppliers actually said. Broadcom’s Hock Tan said financing “might be the biggest constraint”, and Intel’s Lip-Bu Tan said “people want to see the ROI”. The economics behind it: Anatomy of a pulled IPO: Akerlof’s (1970) market for lemons and Myers & Majluf’s (1984) signalling problem Why Asia fell hardest: an index that is really one sector behaves like one stock Two different questions: is AI real, and is the funding priced right? The Railway Mania of the 1840s (Odlyzko, 2010) is the parallel. Where are we in the cycle? Kindleberger’s sequence, after Minsky, suggests “distress” rather than “revulsion”. Everyone knows, but who moves first? Abreu & Brunnermeier (2003) on why a public signal can end the wait. The cost of capital is rising: the CCC–BB spread, Treasury yields and SoftBank’s 9.25% bond What the bond market says: single names are cracking, but the investment-grade index hasn’t confirmed it yet The long view: Perez’s (2002) turning point. Financial crashes end the installation period, not the technology. We finish with the seven signposts Friar is watching (none of them a share price) and an honest look at what this is not, yet. “The best trades are the ones in which you have all the factors in your favour. Waiting for such trades requires patience and discipline.” — Paul Tudor Jones 📚 References Abreu, D. & Brunnermeier, M.K. (2003). Bubbles and crashes. Econometrica, 71(1), 173–204. Akerlof, G.A. (1970). The market for “lemons”: quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488–500. Kindleberger, C.P. (1978). Manias, Panics and Crashes. Basic Books. Minsky, H.P. (1986). Stabilizing an Unstable Economy. Yale University Press. Myers, S.C. & Majluf, N.S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. Odlyzko, A. (2010). Collective hallucinations and inefficient markets: the British Railway Mania of the 1840s. University of Minnesota. Perez, C. (2002). Technological Revolutions and Financial Capital. Edward Elgar. ⏱ Chapters 0:00 Demand Isn’t the Problem, Funding Is! 2:36 The Week in Four Headlines 3:56 Wednesday in New York: The Bill Arrives 6:23 What the Suppliers Actually Said 7:51 Anatomy of a Pulled IPO: Firmus 10:13 Why Asia Fell Hardest 11:25 Two Different Questions 12:38 Where Are We in the Cycle? 14:30 Everyone Knows, but Who Moves First? 16:00 The Cost of Capital Is Rising 19:03 What the Bond Market Says 21:10 The Long View: Perez’s Turning Point 22:24 What Friar Is Watching 24:39 What This Is Not, Yet 25:47 References ⚠️ Disclaimer: This video is for educational purposes only and is not financial advice. Figures differ between sources, and closing prices are used. Just Friar’s thoughts. Friar Tuck’s Research 💬 Join on Discord: Trader Friends. Add Matu03 on Discord and they can add you, as it’s community-led. #AIBubble #CreditMarkets #Investing