This document analyzes the debt-equity choices businesses face in funding operations, especially considering the role of AI investments. The text highlights the fundamental differences between debt and equity, emphasizing contractual claims for debt versus residual claims for equity. It discusses the priority of claims with debt holders having first claim, and legal consequences with debt leading to potential bankruptcy. The tax treatment often favors debt with interest deductibility, but there are exceptions. The author then moves on to explore the trade-offs of using debt, like tax benefits and potential discipline, versus its downsides such as bankruptcy risk. Several reasons are elaborated for companies deviating from optimal debt levels, including bankruptcy shields and subsidized debt. The author also touches on situations where companies may choose less debt, like restrictive covenants and overpriced equity. Ultimately, the choice between debt and equity varies across companies based on factors such as tax rates and management preferences.