Attack the Week (ATW)
Bubbles & Credit / Weekly Calendar / Chart Setups / Allocation Model Update
Sunday Thoughts
Bubbles. I have been thinking about it more recently. There’s a myth about bubbles. That they begin in hype, flourish in frenzy, and end in collapse. But in truth, most begin with something entirely rational: a real breakthrough, a genuine productivity gain, a shift in technological potential. History is littered with examples, and AI fits that mould. It began with a purpose—delivering tools, infrastructure, and compute to fuel a wave of innovation. But like all true bubbles, it now seems to be crossing the line between vertical buildout and horizontal contagion.
What do I mean by that? In investment parlance, a vertical bubble is one where capital clusters in a specific value chain — GPUs, data centres, chips, electricity. The capital lays track. These bubbles can look like booms when the cash flows eventually arrive. If they don’t, the overbuild deflates quietly. But the story doesn’t end there. When those vertical efforts begin to draw in capital, credit, and risk from elsewhere — insurance, structured finance, offshore vehicles — they morph into something more dangerous: a horizontal bubble. That’s when trouble spreads. That’s what we are starting to witness now.
Today, we are watching the financial plumbing quietly reorient around AI. Compute fleets, once just expensive tools, are now serving as collateral. CoreWeave has layered billions in secured facilities over GPUs leased to foundation model clients. Lambda has turned its lease cash flows into GPU-backed securities. NVIDIA, sensing the demand, is extending vendor credit and take-or-pay contracts, structuring deals that resemble financial instruments more than tech sales. Stabilised data centres are being refinanced through asset-backed and mortgage-backed securities, pushing AI risk into fixed income portfolios far beyond the tech vertical. What started as vertical buildout is now branching horizontally — into pensions, insurers, bond funds, and private lenders. Credit expansion always creates systemic vulnerabilities.
Further amplifying this trend is the quietly expanding role of life insurance companies. According to a recent Federal Reserve note, insurers are becoming key intermediaries in the private credit pipeline. Through offshore affiliates, they borrow cheaply, purchase high-yield credit — often in the tech and growth space —and then use derivatives, structured notes, and securities lending to return the risk-adjusted returns to their domestic books. In doing so, they are extending the credit chain without it showing up plainly onshore. This offshore loop is subtle, but potent. It enables insurance reserves to be levered and deployed into risky debt markets — including those funding AI infrastructure.
It’s easy to miss how large this is becoming. Private credit markets globally are expected to hit $2.3 trillion by year-end. AI-linked equities have added over $5.7 trillion in market cap in just two years. And the AI infrastructure buildout — largely financed by forward-looking credit rather than backwards-looking earnings—is expected to require up to $800 billion in capital. All of this atop a reported $18.5 billion in AI application revenue. The disconnect is obvious. The capital being deployed vastly exceeds the current economic output of the sector. But the market is extrapolating future productivity and pricing it now.
The concern is not that these investments will prove useless. Like fibre optics in 1999 or shale in 2012, the assets may prove foundational. But history shows that when funding structures outpace fundamentals, the unwinding is never orderly. AI’s vertical story has been compelling. But the horizontal branches —credit linkages, insurance leverage, bond exposure — mean that any pause in AI cash flows will not just impact NVIDIA or Microsoft. It will ripple across ABS markets, into insurance reserves, structured credit vehicles, and pension portfolios.
This is the critical inflexion point. We are no longer dealing with isolated tech valuations. We are dealing with a bubble that has systemic channels. A vertical surge may hurt builders. A horizontal bubble binds lenders, investors, and counterparties, spreading the pain.
I am not suggesting that a massive crash is imminent, but my sensors are sharpened as I am tracking this carefully. After all, it was Soros himself who declared, “When I see a bubble forming, I rush in to buy, adding fuel to the fire.” It does suggest, however, that risk is underpriced. And when the cash flows from AI disappoint, even temporarily, the unwinding will not be limited to the tech complex. In the end, this bubble has branches. It is no longer about technology. It is about credit. And when credit supports the dream, rather than the cash flow, the system becomes fragile. Verticals can absorb shocks. Horizontals spread them.
Rest assured that I will keep subscribers alerted on my thoughts in this space. The tools of our process will enable us to track and determine a timeline when this could unravel.
This space started almost precisely 3 years ago. To mark this special occasion, I will be running a 20% discount for all subscribers during November. Enjoy while it lasts.
Let’s now read some of Macro D’s thoughts on the CPI print and the upcoming week, before we analyse the weekly calendar, some interesting chart setups and interpret the output of our weekly asset allocation model.
Let’s go!