The “Three Alerts” sound in unison: Sixth Street boss warns that the AI boom is leading to market misalignment

The Zhitong Finance App learned that Sixth Street CEO and co-founder Alan Waxman warned that the AI investment boom is misaligned due to a series of unsettling combinations: rapid credit expansion, speculative frenzy, and emerging supply chain distortions.

In an interview, Waxman listed the three key indicators that his company monitors that often precede market pullbacks in history: “large-scale rapid expansion of credit,” “speculative fanaticism, animal mentality, or fear of missing out (FOMO),” and “distortion in the market.”

Waxman said that the current AI infrastructure construction is “the largest capital expenditure boom in history,” and “no one really understands its unit economics because these economies are constantly evolving throughout the system.”

He pointed out that there are early warning signs in data center construction financing, and said, “Many banks have begun to seek to sell these assets. There was 'indigestion. ' Some banks are worried that they may not have actually read the relevant documents as they should”.

One of the market distortions that Sixth Street is concerned about is the shortage of electricity, which Waxman describes as a “math problem” — “there isn't enough electricity to buy,” and the available electricity is “getting more expensive” and “taking longer.”

The company also pointed out that about $200 billion worth of chips are being piled up in warehouses because the data center is not ready to receive them, creating a potential balance and liability mismatch when “the chips arrive but the data center is not ready.”

Waxman highlighted the increasingly tight constraints faced by insurance company lenders — they have always been major capital providers for chip financing. As these institutions approach the upper limit of single customer concentration on large technology credits such as Microsoft (MSFT.US) and Nvidia (NVDA.US), borrowers will be forced to seek higher-cost capital from pension funds and sovereign wealth funds, with interest rates of 8% to 9%, while insurance companies usually charge 5% to 6.5%.

“When this involves 70% of the debt structure, this is a substantial difference,” Waxman said.

Despite the cautious outlook, Waxman emphasized that “the demand is real” and that AI transformation will eventually succeed.

However, he believes that the market “will eventually form a productive asset like the entire infrastructure. But who will own them? I don't think this is definitive.”

Waxman acknowledged that there is uncertainty about the severity of any upcoming pullback, which depends on many factors including “connectivity (some people call it 'cyclical'), leverage, and a mismatch between assets and liabilities.”

He hoped that the market misalignment would not be too serious, but he also cautioned: “When those three things are established at the same time, misalignment usually occurs.”