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Nvidia's $750B in Deals Reignite Circular AI Fears

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Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#71

Post by javier2 »

maxdo wrote: post #49
thewebguyd wrote: post #34

Earlier quoted context omitted.

Right. The risk isn't accounting fraud, its the equity-to-debt loop that relies on all these companies making "enough money to pay it back someday." 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 lo…

why AI revenue will not cover? 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?

if the data center builders cant cover debt payments, market will likely flood with cheap data center gpus to cover some of the liabilities.

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#72

Post by javier2 »

vanuatu wrote: post #54

can someone explain why this is actually bad? 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 wh…

its not so bad if the funds arent used to borrow 10x, and then spent entirely on nvidia chips.

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#73

Post by javier2 »

vanuatu wrote: post #56
nickff wrote: post #55

Earlier quoted context omitted.

The problem is that when a vendor finances their customers, they can create the illusion of 'real' demand for their product, when most of the the end-users are only actually using something because it's cheap. When the vendor runs low on cash and starts requiring payment, the customer may not be able to afford it, taking both vendor and customer down, and leaving the end-users who have a real need, and were willing t…

that makes sense to me in a conceptual sense 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

> however inference is very profitable

Is it? OpenAI and Anthropic are burning cash faster than anyone has ever shoveled cash into a furnace.

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#74

Post by CoolestBeans »

vanuatu wrote: post #54

can someone explain why this is actually bad? 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 wh…

Its bad if the expected demand is an illusion. For example, when a company builds out a data center they don't build it for demand today, they build it for the demand they expect when the data center is running and for how much they expect demand to grow over the lifetime of the data center (this is a simplification, they build a financial model of how they can grow capacity as demand increases over the lifetime of the data center). If the demand is lower than expected then the counterparty cannot spend that Y amount back. In other words, Nvidia now holds bad debt (really worthless equity since these aren't loans on paper). Furthermore, Nvidia has been making the same bet with multiple companies. That Y amount the counterparty can't pay back is probably correlated with all of the counterparties Nvidia lent X amount to. Suddenly this circular flywheel begins operating in reverse. Now Nvidia has no X amounts to lend to AI companies which makes their ability to pay back Nvidia worse which means Nvidia has less money to lend out and on and on.

There's other problems too, why do we think AI demand is ferocious right now? Nvidia's revenue is one of the biggest signals we use to determine that. Why is Nvidia's revenue so large? They're spending their revenue on more revenue. This process overinflates what AI demand might actually be.

The issue really boils down to that this is a risk that gets reported in a way that makes it look less risky than it really is and therefore actors make investment decisions that they might not otherwise make. Sure, it might work out. But if it doesn't, the pain could be way more painful than it looks on paper.

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#75

Post by wonnage »

thewebguyd wrote: post #44
wonnage wrote: post #32

Earlier quoted context omitted.

Looks like you discovered an infinite money glitch! As long as you’re selling things at a profit, all you need to do is take those profits and give them to your customers to buy more things, repeat the loop a few times and you can become a billionaire food vlogger just like Jensen

> all you need to do is take those profits and give them to your customers to buy more things 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…

So it’s even better, they’re 10x levering the money! Clearly I wasn’t thinking big enough

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#76

Post by willy_k »

hmokiguess wrote: post #67
willy_k wrote: post #57

Earlier quoted context omitted.

This comment struck me as odd, and I went and read some of your other comments. And then I see this comment, on a completely separate thread: > Now I have the full picture. You're right to push back, and that's on me. The load-bearing seams of language are the smoking gun I should have been aware of. Pardon my curiosity, but whats going on? Is this a bit, or a bot, or simply how you tend to write?

Hahah sorry, I just really like the joke. This is me being satirical with the claude-isms. I take it you don't use Claude Code eh? EDIT: By joke I mean this is I guess meme culture shaping as meta references within the workforce using these tools, I find it relevant in certain context on HN as irony and a way to nudge at the topic

No worries, its the first option then I gotcha. I don’t use Claude Code so I didn’t catch the particular reference lol

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#77

Post by polski-g »

javier2 wrote: post #73
vanuatu wrote: post #56

Earlier quoted context omitted.

that makes sense to me in a conceptual sense 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

> however inference is very profitable Is it? OpenAI and Anthropic are burning cash faster than anyone has ever shoveled cash into a furnace.

This was true about 18 months ago. It is no longer true.

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#78

Post by MSKJ »

thewebguyd wrote: post #51
maxdo wrote: post #49

Earlier quoted context omitted.

why AI revenue will not cover? 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?

> How do you lose in this market if you do gpu? 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 (f…

I'm sure the bailouts are already getting negotiated

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#79

Post by oliwarner »

randyrand wrote: post #23

Circular is a dumb way to describe it IMO, because it's not like both parties end up in the same place. 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.

It's circular in the same way you'd describe the whirlpool created by an emptying bathtub. Round and round it spins, sucking in external cash to sustain it.

Without continued external investment, the cycle stops, and we all learn what "too big to fail" looks like this time.

Re: Nvidia's $750B in Deals Reignite Circular AI Fears

#80

Post by zyx321 »

maxdo wrote: post #49
thewebguyd wrote: post #34

Earlier quoted context omitted.

Right. The risk isn't accounting fraud, its the equity-to-debt loop that relies on all these companies making "enough money to pay it back someday." 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 lo…

why AI revenue will not cover? 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?

Some LLM companies paid with stocks instead of cash, or with a mix of cash and stocks. Sometimes Nvidia invested in companies and those companies used that money to buy Nvidia GPUs / NPUs.

Nvidia can lose a lot of money if those companies fail. But even in the absolute worst case, Nvidia can go back to making video game GPUs and they will be fine.

The problem is for everyone else who invested in AI. Especially American "401" retirement funds that always invest in the 100 biggest companies.

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