I’m seeing some scary parallels between the dot com era and today. I was part of the dot com era and there were some powerful lessons from that time. It’s tempting to say this time is different. But even if there is demonstrable customer demand and revenue, there are still some what where the same troubling trends are showing up.
When I was at Nortel we had numerous strategy meetings about how we could compete more effectively on a global basis. Back then, companies like Alcatel and Ericsson were doing much better globally than we were at Nortel.
The folks at Ericsson would show up with their banker in the meetings who could offer them favourable financing terms.
The folks at Nortel didn’t have any such offer. So both Nortel and Lucent went out and borrowed money in the bond market on the strength of their balance sheet and income statement. They in turn provided financing to their customers on terms that were much better than those customers could secure on their own.
When the dot com bubble burst, those bonds became a problem and ultimately resulted in the failure of Nortel and the merger of Lucent with Alcatel.
So here we are in 2026, there is a massive build-out of AI infrastructure.
So when I draw a comparison to the dot com bubble, this is where I am seeing the strongest correlation. If Anthropic and OpenAI were to stumble along the way, all of these companies, Amazon, Microsoft, Google, AMD, XAI, Broadcom, Nvidia, would all be negatively affected. These companies have assumed debt on behalf of their customers.
The hyperscalers together represent about $3T of off-balance sheet risk. The debt in 2000 was 1T but the collateral had much more durable value than the collateral backing today’s debt. Therein lies an extreme level of risk in my opinion. If these companies don’t earn nearly 1T per year in real operating margin for the next 3 years they stand a very high chance of defaulting on that debt.
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