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Tech companies are firing everyone to "fund AI", spending money on each other

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Re: Tech companies are firing everyone to "fund AI", spending money on each other

#101

Post by scotty79 »

jonway wrote: post #57
scotty79 wrote: post #46

Earlier quoted context omitted.

Nvidia is basically allowing some of its clients to pay with partial ownership of their companies instead of with cash for the chips they want, because there's simply not enough cash in them for the lofty goals lots of people think are achievable.

God that sounds so crazy. Its giving me "sell our municipal water to Private Equity to buy a park, imagine the tax revenue!" vibes except its just diluting the shares. It feels like economics in the US is turning into FanDuel mobile gambling. Can we pass a law to disincentivize this garbage and make them start paying dividends again?

It's more like "I'm making so much bread and have so much money already. You are making clothes but don't have enough money to buy bread from me to feed your workers so you can't grow. I think our village population will soon explode and there's going to be huge need for your clothing. So how about I give you money to buy bread from me in exchange for partial ownership of your business and its future profits?" It's a perfectly reasonable thing a rich miller could do for a poor but growing village businesses.

Re: Tech companies are firing everyone to "fund AI", spending money on each other

#102

Post by jonway »

Jensson wrote: post #96
darth_avocado wrote: post #77

Earlier quoted context omitted.

Nvidia can do that because what they sell has an insane markup. Nvidia is getting a billion dollars in equity for input spending of a hundred million. Nvidia is creating demand for it’s products and in turn getting ownership in companies for cheap. It’s like being a VC but your investments are chips and the chips also count as revenue for you.

But if there is a bubble Nvidia is making it worse this way and will get hit hard itself.

the bubble would hit Nvidia just about as hard regardless since their valuation and revenue is already bound to their monopoly on the compute.

Re: Tech companies are firing everyone to "fund AI", spending money on each other

#103

Post by jonway »

scotty79 wrote: post #101
jonway wrote: post #57

Earlier quoted context omitted.

God that sounds so crazy. Its giving me "sell our municipal water to Private Equity to buy a park, imagine the tax revenue!" vibes except its just diluting the shares. It feels like economics in the US is turning into FanDuel mobile gambling. Can we pass a law to disincentivize this garbage and make them start paying dividends again?

It's more like "I'm making so much bread and have so much money already. You are making clothes but don't have enough money to buy bread from me to feed your workers so you can't grow. I think our village population will soon explode and there's going to be huge need for your clothing. So how about I give you money to buy bread from me in exchange for partial ownership of your business and its future profits?" It's a…

No ... its more like "I'm making so many GPUs and have so much money already. You don't have GPUs so how about I give you GPUs in exchange for partial ownership in your business so you don't have to put this capex on your books that affect your ability to raise other investments, trigger certain disclosures, or make your finances look underwater since the assets will likely bolster your own valuation."

Feels gamble-y when the shovel maker is playing weird VC for the gold prospectors like this, but I get the appeal since Nvidia stands to lose everything if this stuff tanks anyhow and it further entrenches Nvidia's own position all while keeping the hype train steaming by moving units.

Re: Tech companies are firing everyone to "fund AI", spending money on each other

#104

Post by scotty79 »

jonway wrote: post #103
scotty79 wrote: post #101

Earlier quoted context omitted.

It's more like "I'm making so much bread and have so much money already. You are making clothes but don't have enough money to buy bread from me to feed your workers so you can't grow. I think our village population will soon explode and there's going to be huge need for your clothing. So how about I give you money to buy bread from me in exchange for partial ownership of your business and its future profits?" It's a…

No ... its more like "I'm making so many GPUs and have so much money already. You don't have GPUs so how about I give you GPUs in exchange for partial ownership in your business so you don't have to put this capex on your books that affect your ability to raise other investments, trigger certain disclosures, or make your finances look underwater since the assets will likely bolster your own valuation." Feels gamble-y…

That is an accurate description. It's a gamble that Nvidia takes. Just making chips would be a normal bet. Making chips and getting paid with equity in its customers is like a leveraged bet. If the AI succeeds Nvidia will own significant vertical portion of all of it. If it fails, Nvidia will shrivel. But by deciding to take that risk Nividia tips the scale on its bet making AI more likely to succeed (or just not to fail because of chip and capital starvation).

Re: Tech companies are firing everyone to "fund AI", spending money on each other

#105

Post by jonway »

scotty79 wrote: post #104
jonway wrote: post #103

Earlier quoted context omitted.

No ... its more like "I'm making so many GPUs and have so much money already. You don't have GPUs so how about I give you GPUs in exchange for partial ownership in your business so you don't have to put this capex on your books that affect your ability to raise other investments, trigger certain disclosures, or make your finances look underwater since the assets will likely bolster your own valuation." Feels gamble-y…

That is an accurate description. It's a gamble that Nvidia takes. Just making chips would be a normal bet. Making chips and getting paid with equity in its customers is like a leveraged bet. If the AI succeeds Nvidia will own significant vertical portion of all of it. If it fails, Nvidia will shrivel. But by deciding to take that risk Nividia tips the scale on its bet making AI more likely to succeed (or just not to…

Do you think its smart to structure commercial ventures this way? In a different space, is it a great idea for a farmer to sell %10 of their venture to John Deere for the tractor?

Re: Tech companies are firing everyone to "fund AI", spending money on each other

#106

Post by scotty79 »

jonway wrote: post #105
scotty79 wrote: post #104

Earlier quoted context omitted.

That is an accurate description. It's a gamble that Nvidia takes. Just making chips would be a normal bet. Making chips and getting paid with equity in its customers is like a leveraged bet. If the AI succeeds Nvidia will own significant vertical portion of all of it. If it fails, Nvidia will shrivel. But by deciding to take that risk Nividia tips the scale on its bet making AI more likely to succeed (or just not to…

Do you think its smart to structure commercial ventures this way? In a different space, is it a great idea for a farmer to sell %10 of their venture to John Deere for the tractor?

If otherwise farmer would not be able to afford the tractor and starve instead I'd say it's pretty reasonable.

You can fund your education with part of your future job earnings.

In a perfect world companies should just do their business and nothing else. Companies shouldn't be able to own other companies because that's gambling on their value. They shouldn't be allowed to do stock buybacks because that's gambling on their own value (and a kind of insider trading).

In our world however companies are free to gamble on the side as long as their owners don't mind.

Whether what Nvidia does is the best or the worst idea, only time will tell.

Re: Tech companies are firing everyone to "fund AI", spending money on each other

#107

Post by jonway »

scotty79 wrote: post #106
jonway wrote: post #105

Earlier quoted context omitted.

Do you think its smart to structure commercial ventures this way? In a different space, is it a great idea for a farmer to sell %10 of their venture to John Deere for the tractor?

If otherwise farmer would not be able to afford the tractor and starve instead I'd say it's pretty reasonable. You can fund your education with part of your future job earnings. In a perfect world companies should just do their business and nothing else. Companies shouldn't be able to own other companies because that's gambling on their value. They shouldn't be allowed to do stock buybacks because that's gambling on…

On the plus side, you can just declare bankruptcy and fold instead of becoming a share cropper.

Heres the thing, these assets deprecate, while the stock doesn't. I see a big asymmetry in deals like this, and I do not like it. When you start a business and become indispensable to your customers, you're doing well. If a company fails, it is maybe unavoidable. In situations like this, the risk increases because now these companies are interdependent not only as suppliers and providers, but in their intrinsic value and likely decision making insofar as shares can be voting shares. In any case, the C Suite and board sure know who owns %10 of the shares.

>In our world however companies are free to gamble on the side as long as their owners don't mind.

This constitutes an enormous systemic risk. We are treading in dangerous waters. The owners are not the only stakeholders in a company.

Re: Tech companies are firing everyone to "fund AI", spending money on each other

#108

Post by scotty79 »

jonway wrote: post #107
scotty79 wrote: post #106

Earlier quoted context omitted.

If otherwise farmer would not be able to afford the tractor and starve instead I'd say it's pretty reasonable. You can fund your education with part of your future job earnings. In a perfect world companies should just do their business and nothing else. Companies shouldn't be able to own other companies because that's gambling on their value. They shouldn't be allowed to do stock buybacks because that's gambling on…

On the plus side, you can just declare bankruptcy and fold instead of becoming a share cropper. Heres the thing, these assets deprecate, while the stock doesn't. I see a big asymmetry in deals like this, and I do not like it. When you start a business and become indispensable to your customers, you're doing well. If a company fails, it is maybe unavoidable. In situations like this, the risk increases because now thes…

>In our world however companies are free to gamble on the side as long as their owners don't mind.

> This constitutes an enormous systemic risk.

Tell me about it. 2008 crash was a result of exactly that. Banks instead of doing banking focused on gambling on risky assets and lost. Nvidia gamble is looking less obviously bad.

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