It’s a shame we won’t have Anthony Bourdain to explain this move to us in the AI implosion docu-flick that comes out in 2029. It’s not stale fish, it’s fish stew! It’s a whole new thing!
In the end, Amazon is still going to be the ones leasing and hence using the chips; nominally the 'owner' changes hands, and it looks like a bond (with a small equity component) in just about every way, except through some legal and accounting magic, it doesn't go on their balance sheet.
The WSJ had some great reporting on the SPV games recently and found $3 trillion in liabilities being kept off balance sheets by playing these sorts of things. However this time around it seems like most folks aren’t getting fooled.
This part is confusing a lot of people. This isn't a secret account trick that makes debt go 'poof' without any consequences.
Companies have debts, assets, and liabilities. They can't keep the assets, move the debt to another vehicle, and do it all without incurring any liabilities.
They move the GPU assets into the SPV. Their assets on the books are decreased.
In return, they get funds they can use to pay down debts, buy more assets (more GPUs), or keep on the balance sheet.
In the process, they incur liabilities because they have to continue paying the SPV to lease the GPUs.
Investors know this. Anyone who understands basic financial accounting knows this.
A lot of the shallow reporting and comments avoid discussing these tradeoffs because it feels more scandalous that way. It's not unlike when we're discussing homeowners and someone interrupts to say "Well actually, don't you know, it's the bank who owns the home!" as if that completely changes the situation.
link - https://www.reuters.com/legal/transactional/meta-set-clinch-...
how many dips are there in that scheme?
As far as I’m aware it’s all legal, but also shady and doesn't inspire confidence. You wouldn’t be trying to obfuscate your debts if you didn’t think transparency to your investors would make you look bad
As for GPU, AMD hasn't raised prices by as much; and honestly my 3060 12GB from many, many years ago plays absolutely every single game I want to play at 1440p; with nice visuals. Yeah, I can't pump everything to ultra, and maybe I need some DLSS for the most demanding games, but it's far cry from "old" or "obsolete".
In terms of actual experience or enjoyment I get from video games, I'm not missing out on anything.
It's legitimate to feel disappointed and upset at the current state of the PC market, but slightly older desktop hardware is still more than plenty fast enough.
I own both a MBP M5 Pro 48GB, and a MacBook Neo, and I use my Neo probably 2x as much as my MBP.
I also have DDR4 and an ancient 1080 8GB, both perform well at 1440p. I built the box months before cryptotokens went exponential in 2017 and it has carried me ever since.
> The cloud giant will then lease the advanced AI chips back from the SPV
I mean nothing is disappearing off the balance sheet. They have this lease agreement they will need to pay.
I would watch for what they do with the freed up cash though. If they use these GPUs they already own as collateral to *double down* on buying more GPUs then we got some serious downturn risk building because its leveraged.
Btw this is like 100% what Jensen was saying when he said gpu compute would be an "investable asset class".
That lease agreement is hold up more hope than god here my guy.
When problems with AI investments become a problem the stock market will already communicate it, news will report it after the fact, not before.
This is like asking if there's a historical basis for understanding how the depreciation of garden sprinklers affects home value appreciation.
Now we just need ratings on the GPU bundles, and eventually a clever way to rebundle the lower rated bundles into something that somehow comes out AAA.
(for those unaware that's how the sub-prime mortgage crisis of 2008 happened)
10% is not a lot.
There is a lot of investment money looking for any AI investment right now. Family offices through large institutional investors have made mandates to allocate to AI investments.
Amazon is in a perfect position to scoop up some of those investment dollars. This is an easy way for them to take advantage of the market conditions.
The doomers are going to assume this is a sign of bubble bursting, but I think Amazon is being smart and weighing their options for financing. If you haven’t kept up with the markets, rates have gone up a lot. If investors are willing to hand you cash to finance your buildout in exchange for something like this, it’s worth considering.
The fact that investors are looking for AI investments right now is not a secret.
EDIT: Did you really register a throwaway account just to post this comment?
Expect earnings calls to become a lot more skeptical about the future of AI once the balance sheet cleanup completes.
Sounds very shady to me. But also sounds like what companies do with real estate, except land does not get obsoleted.
It’s atypical to do leaseback for objects with a shelf life that’s as short as that of GPUs, but in the end, leaseback is not very different from long term renting.
It does signal that Amazon needs more cash fairly soon, but _if_ that is because they plan to invest lots of money, that need not be a problem.
If, on the other hand, it’s because they’re running out of cash, that is a problem, as leaseback solves that in the short term, but makes that problem more dire in the future.
So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
This is creating a SPV company, have that SPV take out loans, have the SPV buy the hardware still installed in Amazon's datacenters, and then Amazon rents the hardware they previously bought and installed from the SPV?
This sounds like an expensive shell game paying expensive finance bros to make some numbers on papers look a little different. What do they really gain from this? Is this just because Amazon wants ~$8B in cash today, like taking a cash-out refinancing on your home? Doesn't Amazon have over a hundred billion dollars in cash on hand? If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
Bought, yes. Installed and in use? We don't know, but probably on a warehouse waiting for a place to be installed, for an energy source to be build.
Put the GPUs in another business, sell it to investors, and watch it unfold.
> The chips in the proposed deal were bought or leased by Amazon. They are installed in more than a dozen US data centres across five states, including Nevada and Virginia, the report said.
The "warehouses full of GPUs" thing might be the most absurd of the AI economy conspiracy theories.
If future interest rates are much worse much more quickly, it can be profitable.
IE: get a bunch of cash today locked at 10%, then lend out the money next year at 20%.
I dunno if that's the plan but there's so many possibilities in finance that it's hard to get what someone else is thinking even if their moves are public.
They’re trying to convert GPUs into an investable commodity asset, just like crude oil is, for example.
Rough analogy: You have oil producers (Nvidia), refineries (AWS) and end-users (all software that uses AI).
> focus less on finding financing for buying GPUs
This is them focusing more on financing on GPUs.
This is also why SPVs are off balance sheet because they aren't really a liability to Amazon (or Google or Microsoft).
The shocking part is that investors are taking on this risk to buy GPUs that depreciate wildly and fail at an annual rate of (supposedly) ~9% for a 7-8% return.
Maybe the rates to do leasebacks on physical items are better, than rates for loans to build datacenters?
Could be leasing has large tax(deductible) advantages too.
Also interest rates aren't high, they're still low taken over historical trends. Thos may mean that tax deductions, written decades ago, do well still via leasing vs depreciating the hardware.
Not a lot of public data about things like that at scale, but there are some things like the Meta Llama report that had ~ 9% annualized gpu failure rate while training Llama 3. Not 100% clear from the Meta report if those are dead hardware or just 'unhappy' because they just put them into the 'interruption caused by' bucket.
Would be interested if anyone had better data on actual live failure rates of h100 or better class gpu that suck so much power.
https://ai.meta.com/research/publications/the-llama-3-herd-o... https://www.trendforce.com/news/2024/10/31/news-datacenter-g...
(If you haven't seen it, you might think I'm joking. I'm not, and it's an amazing film.)
What do you mean? These vehicles only exist if investors buy into them. Are you saying they were "fooled" by buying these investments?
Their existence is not a secret, which is why those journalists were able to find them and add them up. These aren't hidden secrets being hidden from investors.
I see a lot of theories that this is being done to prop up stock prices by hiding debt and making the balance sheet look better, but large investors understand these financial engineering operations and factor it into their decisions to buy and sell stock.
I do think it's funny that so many people think these reporters have uncovered a scandalous secret that all of the investors missed. The way the stock prices didn't collapse after that reporting is a good clue that the investors in these companies were already aware of the situations.
Those folks initially viewed bonds as a safe bet just like folks thought mortgages were a safe bet. However if it turns out they just bought into a mess of “sub-prime” AI bro fantasies and these bonds go bad they’re in for a world of hurt just like 2008 when folks stopped paying their mortgages.
As this all starts to unwind it’s going to be fun watching these same folks run for the exits.
Debt is a liability - putting it separate in the way you have signals your knowledge is probably mangled and you’re stepping way out of your domain of expertise.
Happens here pretty often.
The reason I separated debts out from liabilities is because a lot of these conversations are specifically talking about how this is a mechanism to keep debt, specifically, off the balance sheet.
There are more types of liabilities than debts.
Are you the same person who keeps creating throwaway accounts to attack comments on these posts? There's an awful lot of green text ad-hominem attacks happening in this thread. The other new account attacking my comments also has a name that looks like someone smashed the i and e keys on the keyboard: https://news.ycombinator.com/user?id=eiieke
(There are some limited circumstances where a house can appreciate due to permitting constraints or rapid rises in construction costs, but those are rare and temporary.)
But zoning hell can sometimes make it apply to the housing itself too! For example, where I used to live, tons of housing was marked as "historic" and you literally couldn't tear it down or significantly amend it.