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Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

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Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#181

Post by InsideOutSanta »

aswegs8 wrote: post #171
InsideOutSanta wrote: post #167

Earlier quoted context omitted.

They made huge investment commitments based on planned revenue. They'll go bankrupt (and tear much of the economy down, given how tied up everyone is in them) if they can't keep raising money to pay for these commitments or turn huge profits.

But will they? How greatly are they leveraged? Even if the economics don't work out anymore, they'll be able to sell capacity, pivot, etc. without causing an implosion.

> But will they?

Yes.

> pivot

Unless they pivot to literally turning shit into gold, it's going to be a hard no.

Realistically, they'll be bailed out by the government. That's what will happen. Because China can't win.

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#182

Post by vannevar »

ElProlactin wrote: post #177
vannevar wrote: post #156

Earlier quoted context omitted.

Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any…

> ...the arrangement incentivizes Coreweave to buy chips it doesn't need You state this as fact but this is just cynical speculation on your part. The less cynically speculative analysis is that Neoclouds like CoreWeave are rushing to build datacenters because their whole business is based on the premise that AI is a revolutionary technology and there will be massive durable demand for AI compute for the forseeable f…

>> ...the arrangement incentivizes Coreweave to buy chips it doesn't need

>You state this as fact but this is just cynical speculation on your part.

Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101.

>The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia.

As noted earlier, the $6.3B is a floor, not a ceiling.

>Nvidia will generate about $190 billion in free cash flow this year alone.

Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#183

Post by vannevar »

ElProlactin wrote: post #176
vannevar wrote: post #158

Earlier quoted context omitted.

>CoreWeave is buying chips from Nvidia, paying Nvidia full price I'm not sure this is the case. They are agreeing to pay them some price, it's not clear whether they are getting them for cash or credit but I strongly suspect it's on credit. That doesn't change the GAAP compliance, does it? As I said before, I think they are exploiting an accounting loophole, regardless of whether it is strictly compliant.

> I think they are exploiting an accounting loophole... With all due respect, you haven't articulated what that accounting loophole is. I've explained why the examples/comparisons you've made aren't equivalent according to GAAP. From everything I've read and seen disclosed, CoreWeave pays full price for its Nvidia chips. Nvidia is not financing the sale. CoreWeave has taken on large amounts of debt financing from unr…

I think the definition of an accounting loophole is something that is technically legal but nonetheless suspect because it lets you appear to get something for nothing. According to your best-case scenario, Nvidia helps CoreWeave get a loan it would otherwise not get by guaranteeing revenue for CoreWeave; this allows CoreWeave to borrow money and give it to Nvidia as revenue; bulls point to Nvidia's revenue as a reason to ignore obligations like the CoreWeave guarantee, because after all, just look at all that revenue! And of course it makes GPUs look scarce and valuable, which helps CoreWeave get the next round of debt financing, since presumably the GPUs are the collateral. And the cycle starts again.

I'm not saying these deals are crooked, but the incentives are aligned so that everyone involved is biased toward over-estimating real demand. They are systematically prone to spinning out of control.

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#184

Post by ElProlactin »

vannevar wrote: post #182
ElProlactin wrote: post #177

Earlier quoted context omitted.

> ...the arrangement incentivizes Coreweave to buy chips it doesn't need You state this as fact but this is just cynical speculation on your part. The less cynically speculative analysis is that Neoclouds like CoreWeave are rushing to build datacenters because their whole business is based on the premise that AI is a revolutionary technology and there will be massive durable demand for AI compute for the forseeable f…

>> ...the arrangement incentivizes Coreweave to buy chips it doesn't need >You state this as fact but this is just cynical speculation on your part. Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no r…

> Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101.

There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop. But that's not how it works.

CoreWeave buys chips from Nvidia; Nvidia has agreed to buy up to $6.3 billion in unused compute capacity through 2032. It's not buying back the chips, etc.

CoreWeave has raised way more debt (over $35 billion) to build out compute than what Nvidia has backstopped (up to $6.3 billion). In other words, CoreWeave is spending a ton to buy chips, build datacenters, buy electricity, etc. and Nvidia's backstop, while important, doesn't come close to backstopping all the investment CoreWeave is making to acquire its compute capacity.

If demand for compute dries up, CoreWeave and its lenders are going to be on the hook for way, way more than Nvidia is.

> As noted earlier, the $6.3B is a floor, not a ceiling.

You keep repeating this but it's factually incorrect. The $6.3 billion is the maximum.

https://finance.yahoo.com/news/coreweaves-6-3-billion-backst...

As I've noted, $6.3 billion works out to a few days' revenue for Nvidia.

> Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"

This is such a strange question.

Nvidia reported revenue of ~$215 billion for FY 2026, and ~$96 billion in free cash flow.

I don't know how to put it more simply: this is real money. And gobs of it. It's not made up.

The question you seem to really be asking is: is the demand for chips that is driving this revenue sustainable, or will it collapse, leading to a massive rapid drop in revenue? That's a completely different question but just FYI: Nvidia reported $81.6 billion in Q1 FY 2027 revenue so...

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#185

Post by vannevar »

ElProlactin wrote: post #184
vannevar wrote: post #182

Earlier quoted context omitted.

>> ...the arrangement incentivizes Coreweave to buy chips it doesn't need >You state this as fact but this is just cynical speculation on your part. Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no r…

> Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101. There's a problem here: you haven't actuall…

>There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop.

I'm suggesting nothing of the kind. Nvidia is essentially guaranteeing CoreWeaves return on the chip investment. If someone offered you that deal, regardless of what the investment was, you'd buy as much as you possibly could.

>If demand for compute dries up, CoreWeave and its lenders are going to be on the hook for way, way more than Nvidia is.

True, but irrelevant. The return on investment incentive is independent of how much other debt you have, you'd still buy every unit you could.

>>But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?" >This is such a strange question.

Yet it's the actual question being discussed in the article, and not whether the arrangements are GAAP-compliant. Saying the revenue is real, and that there are "gobs" of it, doesn't make it so. For the record, I'm sure much of it is real. But I'm equally sure that much of the demand is artificial, driven by the business practices we're talking about. I think the root of the problem is that you sincerely believe that if revenue is accounted for in a GAAP-compliant way, it must be real, organic growth driven by real demand. By that standard, you can say that Beanie Baby demand was "real". But it wasn't tied into any underlying economic utility, it was a speculative bubble. So is the AI infrastructure market, just embedded in a much more complex system of deals, as we've been discussing.

>The question you seem to really be asking is: is the demand for chips that is driving this revenue sustainable, or will it collapse, leading to a massive rapid drop in revenue?

Yes, this also is the question really being asked in the article. Among the factors to take into account when judging sustainability are whether the sales are for cash or credit, and whether those sales are being incentivized extrinsically (like, say, guaranteeing ROI).

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#186

Post by ElProlactin »

vannevar wrote: post #185
ElProlactin wrote: post #184

Earlier quoted context omitted.

> Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101. There's a problem here: you haven't actuall…

>There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop. I'm suggesting nothing of the kind. Nvidia is essentially guaranteeing CoreWeaves return on the chip investment. If someone offered you that deal, regardless of what the investment…

> Nvidia is essentially guaranteeing CoreWeaves return on the chip investment.

You cannot say that Nvidia is guaranteeing a return on investment for CoreWeave without showing the actual math for a positive ROI.

CoreWeave has over $35 billion in debt, most of which has been used to build out datacenters. Nvidia's backstop is capped at $6.3 billion, and only through 2032.

You need a new theory here.

> Saying the revenue is real, and that there are "gobs" of it, doesn't make it so.

I'm really sorry, but with all due respect, this is getting into sillyland. Q1 2027 revenue of $81.6 billion is not a made up number. The $58.2 billion in net earnings is not a made up number. The $20 billion Nvidia returned to shareholders via share repurchases and dividends is not a made up number. The $80 billion the company added to its share repurchase program is not a made up number. The $50+ billion in cash and short-term investments on the balance sheet is not a made up number.

If every dollar in was being used to drive a dollar of new demand, Nvidia's financials could not look like this.

Now is there circularity in the AI market? Yes. Are there legitimate reasons to pay attention to it and be concerned? I think "yes" is a reasonable answer. But you cannot claim this is all "fake" and expect people to take you seriously because none of the financials supports it.

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#187

Post by vannevar »

ElProlactin wrote: post #186
vannevar wrote: post #185

Earlier quoted context omitted.

>There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop. I'm suggesting nothing of the kind. Nvidia is essentially guaranteeing CoreWeaves return on the chip investment. If someone offered you that deal, regardless of what the investment…

> Nvidia is essentially guaranteeing CoreWeaves return on the chip investment. You cannot say that Nvidia is guaranteeing a return on investment for CoreWeave without showing the actual math for a positive ROI. CoreWeave has over $35 billion in debt, most of which has been used to build out datacenters. Nvidia's backstop is capped at $6.3 billion, and only through 2032. You need a new theory here. > Saying the revenu…

>Nvidia's backstop is capped at $6.3 billion...

You keep saying this. That is not what the article says. It says the backstop is currently valued at $6.3B. That is not the cap.

>Q1 2027 revenue of $81.6 billion is not a made up number.

No one is saying it's a made up number. If you want to argue, at least read the comment and address the actual argument being made, and not a straw man.

>If every dollar in was being used to drive a dollar of new demand, Nvidia's financials could not look like this.

No one is saying Nvidia was spending a dollar for every dollar. It doesn't have to in order for the demand to be manufactured.

>But you cannot claim this is all "fake"...

Nowhere in this thread did I say it was all fake. Quite the opposite, every bubble has to have a core of reality to be sustainable.

You keep insisting that any revenue booked and reported must be real. So answer me this: if I take a GPU order from an insolvent individual for $100M, can I book that $100M as revenue and be GAAP-compliant? Is it real? What if I don't know that they're insolvent? What if I guarantee them ROI of $10M/year on their purchase so they can get a loan and pay me the cash? Still all GAAP-compliant? Still all real? And keep in mind this isn't a binary question---some of the demand can be real and some manufactured. Maybe my customer had $20M, and ordered $100M since I was guaranteeing the ROI. These are the reasons I am "concerned", as you put it. And as you say, those concerns are reasonable.

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#189

Post by CrimsonRain »

lukan wrote: post #149
CrimsonRain wrote: post #141

Earlier quoted context omitted.

Market is _never_ rational. If market followed rational logic, you could pre-calculate which stocks will be what price and never lose money. (Stock) market is, by definition, irrational. If you are scared of solvency, sell and hold money and/or gold.

"(Stock) market is, by definition, irrational" I assume this is just your definition? Is weather irrational, because you cannot calculate it? Markets and weather are just too complex with too many unknowns to calculate it.

You're just being pedantic. To a sufficient advanced being (eg God), the whole universe is rational/calculable/etc. Are you the type who says "you're wrong! It's 9:01" when someone says it's 9?

Re: Nvidia, CoreWeave, and Nebius: Inside the Circular Financing of the GPU Boom

#190

Post by CrimsonRain »

tliltocatl wrote: post #152
CrimsonRain wrote: post #141

Earlier quoted context omitted.

Market is _never_ rational. If market followed rational logic, you could pre-calculate which stocks will be what price and never lose money. (Stock) market is, by definition, irrational. If you are scared of solvency, sell and hold money and/or gold.

> If market followed rational logic, you could pre-calculate which stocks will be what price and never lose money. The fundamentals are unpredictable, so even a perfectly rational planning (suppose such thing could exist) would lose money sometimes. Not in the long run, but long run doesn't matter if a single wrecked ship can wreck you.

How?

If you don't believe in ai/nv etc, just invest in things unrelated. When the "ai circular bubble" bursts, you'll be rich!!

Invest in the companies you believe in. Invest long term. Don't cry about bubbles if you're an ETF-Chicken.

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