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

> 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.

But you haven't even articulated what the loophole here is.

> 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!

Nvidia's guarantee is almost certainly a consideration for CoreWeave lenders that could lead them to provide financing on more favorable terms than they would if there was no guarantee. However:

1. Building out capacity for CoreWeave isn't just about buying chips. It has to build datacenters, pay for electricity, etc. The amount of debt raised ($35 billion+) far exceeds what it has paid Nvidia so lenders are nowhere close to having a make-whole guarantee from Nvidia here.

2. The backstop is subject to termination if certain events occur, and these events are far more likely to be triggered if CoreWeave comes under financial distress, which is when it would need the backstop the most.

It's not that there are no risks here; it's that you haven't actually articulated in legitimate terms what they are and you haven't quantified anything.

>We don't know what the maximum is because some of the terms are confidential.

So we agree on something: the $6.3B is not the cap: we don't actually know what the cap is. (And for the record, I never spoke confidently about the agreement, I spoke confidently about what was stated in the article.) The SLA you linked is the operating agreement that is effective once the revenue guarantee comes into effect, it is not the agreement that guarantees the revenue. Insolvency is a canard: the whole point, from CoreWeave's perspective, is that the guarantee helps insure that it won't go insolvent if demand doesn't materialize. It can essentially pass the loss back to Nvidia. That's also why you indicated that it makes the deal more attractive to third-party lenders, correct?

>So have you quantified how much money Nvidia has to spend to generate a dollar of artificial demand?

No, because the precise amount is irrelevant. What matters is that the chip demand is induced, not organic.

>CoreWeave is publicly traded. Feel free to evaluate the financials and explain how the company is insolvent.

I did not state that CoreWeave was insolvent. I was pointing out a flaw in your apparent belief that reported, GAAP-compliant revenue is unimpeachable. At least now, you're asking the right questions.

>A smarter discussion would be around CoreWeave's leverage and what happens if the AI demand dries up.

That is the discussion I have been trying to have. Nvidia's demand-goosing is only one piece of a much larger circular system. One way that demand would appear to dry up is that it was never as rapidly growing as these deals assume it is. Once everyone in the chain buys into an assumption of growth, it can become a self-fulfulling prophecy, at least until reality becomes unavoidable. Right now, the assumptions are not really about AI demand, they are about data center demand. That's where the money is being spent, and that's where the circularity is appearing. We are in a regime where companies are richly rewarded whenever they participate in a data center deal, because "everyone knows, AI is going to be huge." There is a good discussion of how this is happening in https://www.groundbrkr.com/p/the-second-derivative-why-no-on... (see section III, "the AI Boom is a Credit-Driven Real Estate Cycle"). The gist of the article is that actual AI demand doesn't have to "dry up" for the system to collapse, it only has to accelerate at a slower rate than the assumptions made to support the data center deals.

>You haven't actually demonstrated that Nvidia has guaranteed CoreWeave a positive return on its investment.

You're misreading the meaning of the term "investment" here; only the ROI on the GPU purchase is relevant with respect to Nvidia, not any pre-existing 3rd party debt. I'm not saying Nvidia is guaranteeing CoreWeave's net profit as a business, only the marginal ROI it expects from the chips. Which still means that it is incentivized to buy to whatever the limit is of the guarantee, independent of organic demand. And remember, real demand doesn't have to decline, it only has to slow its acceleration. Goosing demand as Nvidia has done is clearly risky in that environment. And it also raises the question, why they had to do it at all if demand is so robust?

>But you haven't even articulated what the loophole here is.

I did, but here it is again: if you book revenue for sale of an asset where you guarantee the ROI on that asset (not on the entire business, you keep confusing those two very separate concepts), that revenue is suspect. You can stamp your feet and turn blue in the face claiming GAAP-compliance all you'd like, but that revenue should be regarded skeptically, just as revenue from an insolvent customer should be.

>Nvidia's guarantee is almost certainly a consideration for CoreWeave lenders that could lead them to provide financing on more favorable terms than they would if there was no guarantee.

Ha, nice side-step. Certainly CoreWeave isn't benefitting here, it's just those poor lenders. C'mon, man. You're right that the lenders will ultimately be left holding the bag, but that doesn't change the fact that CoreWeave is being induced to buy chips to the maximum limit of the ROI guarantee, independent of underlying demand. I've repeatedly said that, and you keep completely ignoring it and complaining that I'm not describing the problem.

>Building out capacity for CoreWeave isn't just about buying chips.

You're assuming that CoreWeave has to build out marginal capacity for those chips. We don't know, because the agreement is not public. But all CoreWeave has to do is have the capacity, which could easily---even probably---come from capacity already built but unsold, by the time the guarantee comes into play.

>The amount of debt raised ($35 billion+) far exceeds what it has paid Nvidia so lenders are nowhere close to having a make-whole guarantee from Nvidia here.

Again, you keep attacking a straw man. Not only have I never said Nvidia was guaranteeing CoreWeave's entire debt, I've explicitly said they were not, and did not need to in order to make this deal suspect.

>It's not that there are no risks here; it's that you haven't actually articulated in legitimate terms what they are and you haven't quantified anything.

I have in fact articulated them multiple times, you simply either haven't read them or for some reason lack the capacity to understand what I'm saying. And as I have also noted multiple times, the exact amounts don't matter. If you guarantee ROI on a piece of equipment in order to sell more of it, that is a red flag when your official narrative is that you can't make enough of these things to satisfy demand. And that is just as true on a $1M deal as it is on a $10B deal.