Nvidia's $750B in Deals Reignite Circular AI Fears(bloomberg.com) |
Nvidia's $750B in Deals Reignite Circular AI Fears(bloomberg.com) |
> The concern is familiar: NVIDIA money funds customers who then buy NVIDIA chips.
If you were NVDA and had that much cash on hand and wanted to grow your business, where would you put it?
Nvidia is making trades for people to buy their GPUs.
Sometimes companies are trading stock for GPUs, sometimes money, other times something else.
In summary, Nvidia is selling GPUs.
Nvidia invests, that equity check gets used to secure 10x it in debt with the GPUs as collateral, and then they buy the chips.
Nvidia gets paid, so they don't hold the debt liability. But, if AI revenue doesn't cover those debt payments before the GPUs depreciate, the loop starts to unravel, and fast. CoreWeave, Oracle, all the "neoclouds" etc. will blow up, and there could potentially be a ton of PE debt that is now under-collateralized due to depreciation, causing a pretty big haircut to basically all of private credit.
Chinese models pushes prices down and quality up, that makes GPU-based automation more affordable, while covering more and more cases to automate.
You can debate that llm producers will go bankrupt, some of them at least for sure.
How do you lose in this market if you do gpu?
https://www.sciencedirect.com/science/article/abs/pii/S01651...
It's stronger for momentum stocks, but it's not like something like a gold mine escapes from it either.
These deals give Nvidia more exposure to that, in both directions. Certainly Nvidia shareholders should be cognizant of this. But nothing structurally problematic is occurring here.
Nvidia gets real cash, pays TSMC, etc.
The people in real trouble are companies like CoreWeave, Oracle, etc. that took an IOU from OpenAI (for example) to start a buildout, entirely debt financed. It works out so long as demand keeps going up, but the moment the music stops and that debt comes due and there's no revenue to pay it, game over.
Nvidia's concern isn't not actually getting paid, it's being faced with a glut of cheap, depreciated GPUs flooding the market impacting their future revenue. They'll live.
But OpenAI, not being able to pay CoreWeave, for example, that IOU, and then private credit coming for the debt payments from CoreWeave, is what would start the chain reaction. We may actually get to live to see Oracle fall.
Those customers aren't buying Nvidia chips with Nvidia's money. They're using Nvidia's equity check to finance debt, and then using debt to buy the GPUs. Nvidia invests $1B in someone like CoreWeave, CoreWeave then takes that check, goes to PE a borrows $10B w/ the GPUs as collateral. Nvidia basically paid $1B to get $10B in sales, and now CoreWeave is saddled with debt based on an IOU from the AI labs.
Nvidia is insulated from the debt exposure, but the companies doing the datacenter build outs are the ones in real trouble if the house of cards comes falling down.
nvidia spends X amount to invest in data centres or investments on the agreement that the counterparty spends Y amount back, the net delta is the actual amount of value being transferred aka Nvidia sells chips as usual despite the high numbers of X and Y?
The frontier labs do not have enough chips to meet demand, and AI demand is ferocious and climbing, so I'm not sure what the story is here
however inference is very profitable and plummeting in cost for a given point on the intelligence curve, and nvidia gpus can serve different models so they are protected post-buildout
if open source throws a wrench into the frontier revenue growth, then its gonna be biggest bubble explosion
So if the company defaults they can take the GPUs and servers etc and sell those.
Nobody (including the dragon) benefits from sitting on piles of gold.
Your post is "cute", but 3 or 4 months of operating cash isn't a great example of "sitting on piles of gold".
It's some sort of tragic positive feedback loop that isn't going to stop until the whole thing comes crashing down for everyone and we're paying $37,000 for a loaf of bread.
In addition to actual lost jobs, replacing a skilled white collar worker with a fungible operator of AI lowers the salary for that role significantly.
The whole idea is impossible.
OK, dumb attempt at funny over, but certainly someone is thinking about instability costs? Even if everyone is super cool with literal Death Pits, they don't run for free. And not everyone will be cool with watching their entire family die, which will mean substantial costs in security - and money spent on security, that's just setting money on fire, that money doesn't work any more.
I know they've batted around the ideas of "compliance collars" and suchlike for the guys running the Death Pits, but I haven't seen anything that wouldn't be ultimately defeated by a typical zoo chimpanzee, let alone a psychopathic Delta Force guy with more advanced degrees than your entire family. He will not be pleased with your "compliance collar" thing.
And the brain control chips they've been trying to get working . . well, they're not ready yet. You'll just make the Delta Force guy even crazier .
Second, trying to time the market is almost always a suboptimal strategy. The question is when will you likely need the money? If you won't need it for 10 years or more, keep it in index funds. Otherwise, treasuries.
I want to acknowledge and empathize how much it sucks, while also putting it out there so that nobody suffers blaming themselves for something that might not be achievable.
Disclosure: I've been waiting-and-seeing too long myself, and I should probaby stop trying to time/strategize.
The market can keep going up in dollar terms while losing real value if we enter a phase of high inflation.
There is no way the US’s leaders let the prices of publicly traded securities go down or even stagnate relative to the US dollar. These publicly traded securities make up a significant portion of the US leaders’ and most active voters’ assets, plus almost all state and local US governments depend on the securities’ price growth to meet their deferred compensation obligations.
The alternative to risk in US securities isn’t the USD, it’s a stake in other stable countries with resources.
what's your risk tolerance?
You don't. Nvidia gets paid either way. They were never the ones in danger (outside of the buildout going bust and having a massive surplus of cheap, used GPUs flood the market).
> You can debate that llm producers will go bankrupt, some of them at least for sure.
And that's the risk that will cascade down and kill off a bunch of companies and cause a debt crisis. If (for example), OpenAI goes to Oracle and says "I promise I'll pay you, at some point in the future, $1T to build my datacenters" and then Oracle funds that build out with debt, and then OpenAI goes bust, or just doesn't make enough money or can't raise enough cash to start making payments on their IOU, Oracle now also can't pay their debt and will eventually go bust, and now the private credit market takes a huge haircut, potentially bankrupting entire funds (like what happened in '08).
Is it? OpenAI and Anthropic are burning cash faster than anyone has ever shoveled cash into a furnace.
Is there any actual evidence of that?
Say, for the sake of argument, that the US government bails out OpenAI. Are they now suddenly not a money-burning operation anymore that will need another bail out in a period better measured in weeks?
The thing is just very unsustainable.
BRK has stated that they'll buy back in when prices are reasonable again, so it's an automatic "sell-high buy-low" strategy.
markets...irrational... longer than you stay solvent, etc.
I mean their cash pile is also invested in money markets (so you get that), and the rest of the portfolio consists of quality companies where their (combined) valuation didn't explode in the last 1,5 years. So it's an opportunity to invest into something that might not be overheated.