Dear Reader,
Today I want to talk about Broadcom — and a warning sign buried in the fine print that I think a lot of people are missing.
Broadcom isn't just selling AI chips anymore.
It's becoming one of the biggest corporate borrowers in Wall Street history.
And the way it's doing it tells you something important about where we are in this AI cycle.
What Broadcom Is Doing
Broadcom is seeking $60 to $70 billion in senior secured loans, plus another $30 billion in subordinated debt.
Roughly $100 billion total.
The money is tied to their AIX PV platform — a structure where outside investors fund AI computing racks that are then leased to hyperscalers and neo-cloud providers.
Translation: Broadcom is raising money to help its own customers buy its products.
How nice of them.
Bank of America put out a research note suggesting this financing vehicle could balloon to $150 billion by 2027 if successful.
Think about that.
And Broadcom isn't alone.
Nvidia is doing versions of the same thing.
Circular financing deals.
Companies helping their customers afford their products.
At an almost incomprehensible scale.
What Mickey Taught Me
I can't help thinking of an old man I worked with early in my career.
He used to say to me: you can tell the end of a bull market by the quality of companies going public.
I learned what he meant in 1999.
The longer the dot-com boom ran, the worse the companies going public got.
By the time Pets.com listed, the market crashed a few weeks later.
Because what happens is simple.
Demand gets so insatiable that Wall Street starts selling whatever it can find to feed it.
Customers want dot-com? We'll find you dot-com.
The paper gets worse and worse until the music stops.
But here's what I learned during the real estate crisis.
It's not even about the quality of companies going public.
It's about the quality of paper being sold.
Whether that paper is dot-com IPOs in 1999 or mortgage-backed securities in 2006.
The Fine Print That's Giving Me Flashbacks
What Broadcom is doing reminds me of the mortgage boom.
You take enormous amounts of debt.
You slice it up.
You repackage it.
You sell it to investors who are starving for yield.
During the housing bubble, they took pools of mortgages — good and bad all mixed together — sliced them up, sold pieces to institutions around the world, and nobody really knew what was inside until people stopped paying their mortgages and the whole thing collapsed.
I called that publicly before it happened.
It was obvious.
And I want to be very clear about something.
I'm not saying what Broadcom is doing is fraudulent.
Helping customers finance your products is a practice as old as business itself.
What I'm talking about is the scale at which this is happening.
We are starting to flirt with mortgage-level scale in AI financing.
We Are in an AI Bubble
I'm going to say something that a lot of people on Wall Street won't say.
We are in an AI bubble.
Make no mistake about it.
It's not going to pop yet.
Earnings are still too strong.
But look carefully at what those earnings are based on.
Broadcom is earning money in part because it's financing its own
customers to buy its stuff.
More and more of these circular financial deals are infiltrating through the Mag Seven and the broader AI ecosystem.
When this turns around — and it will, human nature is what it is, these patterns repeat roughly every five years — there are going to be a lot of people holding some very bad paper.
And I've seen this pattern enough times to know what comes next.
That's why I pulled my Midnight in America research back out this week.
In it I make a case I don't make lightly.
That the stock market falls 50%.
That real estate drops 40%.
That savings accounts lose 30%, and unemployment triples before this is finished.
I know exactly how that sounds.
It sounded just as absurd in 2006, when I was telling anyone who would listen that the mortgage market was going to take the whole economy down with it.
I'd rather be early and ignored than on time and quiet.
So I've laid out the exact four steps I would take right now to get ready for it.
Have a good day.
I'll see you tomorrow.
"The Buck Stops Here,"
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Written by Dylan Jovine