Aswath Damodaran (NYU) | Private Credit Is the Biggest Loser When AI Corrects | #15

ℹ️ EPISODE INFO

Released

June 22, 2026

Duration

59m

Channel

Fixed + Floating - The Credit Podcast

Watch on YouTube

▶ Open ↗

📝 EPISODE DESCRIPTION

Each AI company can price itself on an internally consistent story about winning its market. Sum the stories together, and the revenues they imply exceed any market that could plausibly exist — Aswath Damodaran calls this the big market delusion, and he puts a hard ceiling on it: global companies generated $142 trillion in revenues last year against $20–25 trillion in employee expenses, so the $26 trillion total addressable market in SpaceX’s IPO pitch is, in his word, fiction. The more interesting question for this audience is who gets hurt when the delusion corrects — and his answer is not the equity investors. It’s private credit. 📖 For the full written analysis and charts, read the Substack here: https://open.substack.com/pub/fixedfloating/p/financing-the-big-market-delusion?r=718tew&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true Aswath Damodaran is Professor of Finance at NYU’s Stern School of Business and, for a generation of investors, the definitive teacher of valuation. He writes the Musings on Markets blog, posts his data sets free every year, and has built the most widely used public frameworks for valuing young companies, distressed firms, and businesses across the corporate life cycle. We brought an equity-valuation mind onto a credit show on purpose — to pressure-test how credit investors think about cash flows, covenants, and the price of lending into a boom. 📊 KEY INSIGHTS FOR CREDIT INVESTORS:

• The asymmetric loser: when the AI build-out re-prices, equity holders keep the upside and private credit absorbs the downside
• Financing should act its age: young companies that borrow put their entire growth option at risk
• Default risk belongs in the cash flows, not the discount rate: value the company twice — as a going concern and at liquidation — and weight by survival probability rather than inflating the discount rate.
• Distress is optionality: equity becomes a call, debt becomes a put — so a passive lender in a levered company is short an option whose variance the equity holder controls.
• Pricing is not valuing: 95% of investors price companies off multiples and comparables

💬 QUESTION FOR THE COMMENTS: If spreads on AI-infrastructure debt are being set by the equity narrative rather than by current cash flows, what is the right premium for being short that option — and is anyone actually charging it? 00:00 Introduction: Aswath Damodaran on Valuation 00:54 The AI Big Market Delusion Explained 03:47 Picking Winners in a Low-Odds Market 05:15 Who Captures Value in the AI Stack 07:32 Pricing Versus Valuing Young Companies 09:33 AI Total Addressable Market: Tool or Replacement 11:05 Valuing Chip Companies and Volatile Earnings 14:18 Unit Economics and Back-to-Basics Valuation 16:05 GPU Depreciation in AI Valuation 18:49 Data Center Debt and Private Credit Risk 22:44 CoreWeave: Equity Narrative Driving Cost of Debt 26:56 Valuing Companies With Structural Overcapacity 29:03 Book Value, NAV and Liquidation Value 32:27 Asymmetric Lending and the Equity Upside 34:25 Corporate Life Cycle: Financing Should Act Its Age 37:03 Why Young Companies Borrow: Control and Equity Access 39:05 Default Risk and Survival Probability in Valuation 42:50 Why Declining Companies Slide Into Distress 44:07 Pricing Distressed Credit and Negative Convexity 45:20 Equity as a Call Option, Debt as a Put 48:00 Underinvestment and the Debt Spiral 50:42 Credit Versus Equity Investor Incentives 52:23 Common Valuation Mistakes by Professional Investors 54:53 Price Versus Value and the Equity Risk Premium 57:14 What Credit and Equity Analysts Must Share ABOUT THE GUEST: Aswath Damodaran — Professor of Finance, NYU Stern School of Business. Author of Damodaran on Valuation, The Dark Side of Valuation, Narrative and Numbers, and The Corporate Life Cycle. Website: https://pages.stern.nyu.edu/~adamodar/ | Blog: https://aswathdamodaran.blogspot.com | X: https://x.com/AswathDamodaran 🔥 SUBSCRIBE TO FIXED + FLOATING: https://youtube.com/@FixedFloating 📌 CONNECT WITH JOSEF PSCHORN: Substack: https://fixedfloating.substack.com LinkedIn: https://linkedin.com/in/josef-pschorn Twitter/X: https://x.com/FixedFloating ⚠️ DISCLAIMER: Fixed + Floating is for informational purposes only. Not investment, legal, or tax advice. Guest views are their own and do not represent their employer. Consult qualified professionals before making investment decisions. #fixedfloating #creditanalysis #creditmarkets #highyield #fixedincome #privatecredit #valuation #AIbubblE #datacenters #distresseddebt #corporatefinance #Damodaran

🎤 SPEAKERS

• Aswath Damodaran

  guest

  Professor of Finance at NYU Stern known for valuation and corporate finance.

• Josef Pschorn

  host

  Host of the Fixed + Floating credit podcast and interviewer for the episode.

🧾 EPISODE SUMMARY

In this episode of Fixed + Floating - The Credit Podcast, featuring Aswath Damodaran and Josef Pschorn, Aswath Damodaran (NYU) | Private Credit Is the Biggest Loser When AI Corrects | #15 explores Damodaran on AI valuation, delusions, and private credit’s looming risk Aswath Damodaran argues AI investing suffers from a “big market delusion” where individually plausible growth stories become impossible in aggregate, leading to an eventual shakeout when the true market materializes.