> That was a bunch of companies who had so much profit that all they could think to do with it was buy their own stock back.

If you or your retirement is a shareholder in one of these companies, you'd rather they return $100 billion to you with boring buybacks or dividends than put it in an exciting AI investment that returns $1-$10 billion. Even though it didn't end up completely worthless, it's still a bad investment.

> If AI blows up in Microsoft or Google’s face they’re just going to write it off and spend a decade paying zero income tax

As a shareholder, you'd also rather they return $100 billion to you than put it in a bad investment that returns $0 -- even if that bad investment lets them write off $20 billion in taxes over the next 10 years you'd still be $80 billion better off.

> how much it’s actually going to matter. If AI blows up in Microsoft or Google’s face

An AI winter shouldn't be an existential threat to these companies -- but "the share price is 10% - 20% lower than the counterfactual where they didn't make these questionable investments" still represents a lot of lost wealth for shareholders -- billions (or trillions for the industry as a whole). A lot of that wealth is the hands of ordinary people, often through retirement investments in index funds.

One possible explanation for this is that it’s basically a systemic failure of the market. Shareholders are pricing companies as if being a winner in the AI boom is the most important thing. Company leadership then must position themselves as a winner, or the market responds by devaluing their share price and they lose their jobs and probably their incentives. The most legible way for leaders to show they’re in the AI race is to spend money on AI infra, even if it means taking on debt to do so.

So if this is in fact a bubble, nobody can really act differently until the market stops treating AI spending as a winning strategy.

Microsoft is on its way to losing they have been trying desperately to find or hook on to the next great thing. And they have been failing market inertia is keeping them afloat. But they’re on their way to taking a hit like Intel, I don’t think the current CEO at Microsoft is gonna survive Copilot and the collapse of Xbox.

> Is this money not understood by the tech giants taking on the debt? I imagine they understand exactly what’s going on.

Fair. I think everyone who is financially astute knows what's going on. I think pretending "oh, we didn't expect this" is at best, faux naieve. But, I think underlying "understand" is "don't care" -I think there is a segment of the investment industry which only looks to their own profit, not the "build a bigger market" outcome. And so, wiping 4T of debt out, with some recovery in the ashes can be sold as a win for them, if they can be in the right segment of the market.

I don't think it's a net win overall. I don't think driving worldwide RAM prices high was a win. Mind you, I bet RAM manufacturers are quite happy.

> Is this money not understood by the tech giants taking on the debt?

There's a game-theoretic way of modelling this situation called, from memory, a modified Dutch auction. The way it works is that the winner pays the difference between their bid and the next highest bid, and so on all the way down. It models the way in which players are motivated to extend themselves almost infinitely in an attempt to win something unwinnable (what are the success criteria for "winning the AI race", in other words how do you know when you've "won"? And what do you get for "winning"?).

> Tech giants before the AI boom made a heck of a lot of cash that they had nothing they could do with it. Remember before AI when the existential crisis was stock buybacks? That was a bunch of companies who had so much profit that all they could think to do with it was buy their own stock back.

I'm just spitballing here, so bear with me, but maybe increasing the value returned to the people doing the actual work that created the profit in the first place.

> Tech giants before the AI boom made a heck of a lot of cash that they had nothing they could do with it

Dividends.

I think the that they feel the need to do these off balance sheet shenanigans is the issue. They're obviously extremely worried that their credit rating is going to be downgraded otherwise, why bother?

I cynically suspect there's an expectation of a bailout, and that it may have even been engineered.

They understand fully. They don’t care, because it’s not their money.

Look back at the “dotcom” bubble. And the Savings and Loan crisis. And the Subprime mortgage crisis.

This is going to be 10x all of those put together, minimum.

> I imagine they understand exactly what’s going on.

Maybe they are counting on taxpayers to bail them out if they crater in a 2008-scale failure.

"I imagine they understand exactly what’s going on."

You'd also reasonably imagine that every major financial institution on the planet in combination with several sovereign governments would collectively have a handle on the market and yet CDOs nearly bricked the global economy in 2008. History suggests your faith here is likely misplaced.

"Take a look at your 401(ks). And when you're 68% up or whatever you may be, you are up a lot... under Sleepy Joe you were 25% down."

[1]: https://www.youtube.com/watch?v=iJ84XMTugFs

It isn't to your original question but in terms of giving a cost to misunderstandings of finance one needs look no further then American politics.

401k growth is wrongly the face of the American Economy when it should be more tangible attributes like the understanding of debt at the macroeconomic level.