SoftBank just missed Wall Street Net Income estimates by 70%. Meta hides $27 billion in AI debt off the books. Oracle piles on $38 billion more through shadow financing. ‘The AI hype will die.’

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Meta is paying $6.5 billion extra in interest to keep $27 billion in AI infrastructure debt off its balance sheet. They’re using something called conduit financing, where a special purpose vehicle borrows the money, builds the data centers, and leases everything back to Meta. On paper, Meta is just a customer making lease payments, not a debtor.

Oracle is doing the same thing at even larger scale: $38 billion for two data centers through Vantage, part of its $500 billion Stargate partnership with OpenAI. xAI raised $20 billion through a similar structure, with Nvidia contributing $2 billion in equity while also being the hardware supplier.
The circular financing is incredibly dizzying. Nvidia invests in CoreWeave. CoreWeave uses that capital to buy Nvidia GPUs. CoreWeave leases capacity to Microsoft and OpenAI. Their revenues support the lease payments. Nvidia reports revenue from the chip sales and marks up its CoreWeave investment. Everyone’s balance sheet looks clean.

My Take
Some analysts are comparing this to subprime-era tactics where firms shifted risk off their books to reassure investors. The structures are legal and the accounting is technically compliant, but the effect is the same: hundreds of billions in obligations that don’t show up as debt in the traditional sense.
The whole thing depends on AI eventually generating enough revenue to justify the infrastructure costs. Moody’s flagged that Oracle’s data centers rely heavily on OpenAI, which won’t be profitable until 2029. If AI monetization disappoints, we’ll find out whether bondholders have secured claims on essential infrastructure or whether they’re functionally unsecured creditors of overleveraged single-purpose entities whose assets are worth less than the outstanding debt.

I keep coming back to the same question with all of this: what happens when the music stops? The conduit structures haven’t been stress-tested. The hyperscalers are profitable now, but these are 20+ year obligations built on assumptions about AI demand that haven’t been proven. If custom silicon undercuts Nvidia demand or the revenue never materializes, a lot of people are going to discover that the risk they thought was somewhere else was actually right where they were standing.

Hedgie🤗

George Noble
@gnoble79
I’ve been saying it for months: The AI hype will die.

And I’m watching it happen in real time.

Let me tell you something about market cycles after 45 years on Wall Strett:

When everyone believes the same story, when valuations price in perfection, when “this time is different” becomes consensus…

That’s when the trade is OVER.

The Mag 7 spent $380 billion on AI infrastructure in 2025.

CFOs across America can’t point to measurable returns.

No productivity gains. No labor savings. No revenue acceleration.

Just massive capex and promises of transformation “coming soon.”

I’ve seen this play out before.

Dotcom 2000. Everyone knew the internet would change everything.

They were RIGHT about the technology.

They were WRONG about the timing and the valuations.

The companies that survived took 15 years to make new highs.

Here’s what’s happening now:

The Mag 7 has already started underperforming.

Since October 2025, the S&P 493 is outperforming the Magnificent 7.

Small caps are waking up.

The Russell 2000 is finally showing signs of life after years of underperformance.

This is the rotation I predicted.

And it’s just getting started.

Why small caps now?

Because they’re trading at decade-low valuations relative to Big Tech.

The P/E spread is 10+ points.

But earnings growth is only 5 points lower.

You’re getting 95% of the growth at 50% of the valuation.

The Mag 7 is priced for AI transformation happening NOW.

But Goldman says measurable GDP impact doesn’t start until 2027.

That’s a 2-3 year gap between expectations and reality.

Markets don’t wait politely when they realize they’re wrong.

I ran the #1 mutual fund in the country at Fidelity and worked under Peter Lynch.

And I’m telling you: This is what a market top in a narrow leadership group looks like.

Not a crash. Not a crisis.

Just a slow realization that the future takes longer to arrive than the stock price assumed.

Meanwhile, small and mid-caps are trading like it’s 2008.

Except we’re not in a financial crisis.

We’re in a market where everyone is crowded into seven stocks and ignoring 2,500 others.

That doesn’t last.

The AI infrastructure build is real.

But infrastructure builders get paid first.

Productivity beneficiaries get paid later.

Much later.

And the market is finally starting to figure that out.