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OpenAI, Nvidia fuel $1T AI market with web of circular deals

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Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#231

Post by cjrp »

azan_ wrote: post #218
mnky9800n wrote: post #198

Earlier quoted context omitted.

Yes but this is by design. Wealthy people want bubbles, when they pop, you can gobble up all the value at all time lows. Then you hold until you don't feel like it anymore as the market goes back to growing. You see this as how private equity has bought up real estate across the USA to turn into rentals after 2008, for example.

Aren’t extremely wealthy people that wealthy due to the valuation of their stock? IIRC generally the higher the networth, the higher share is kept in stocks

They can move their wealth from stocks to gold, for example. Look at the price of gold.

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#232

Post by JCM9 »

tim333 wrote: post #206
jongjong wrote: post #196

Earlier quoted context omitted.

But you can't fake profits that way (without cooking the books); you can only fake revenue. That's why profits matter. Though I guess with high velocity of money circulating in tight loops, everyone involved can feel rich. 1 million dollars changing hands once per day can potentially mint 365 'millionaires' during the course of a year. If they just pass it back and forth among themselves to buy each other's stocks an…

You can fake profits. Company A hands $1m to company B to buy equity in it. Company B hands the $1m to A to run ads on A. Under GAAP (normal accounting) A has a profit. In reality are they profiting? Who knows - it depends how A does as a business.

In the very short term yeah, but in the long term GAAP still sniffs this out. Eventually Company A will need to use some form of mark to market valuation to assign a value to that $1M they invested. If Company B is a dumpster fire then eventually the $1M investment will be worth much less (or zero) and balance is restored to the world.

You see companies hand waving this sort of thing away on earnings calls when they have a really bad quarter but the CEO is blowing smoke at shareholders saying “On non-GAAP this was an amazing corner.” Which is code speak for “that terrible decision I made a few quarters ago is coming home to roost and our lawyers have said I need to reflect that on our books. If you ignore where we screwed up badly, our numbers look good!”

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#233

Post by zmgsabst »

azan_ wrote: post #216
HelloNurse wrote: post #197

Earlier quoted context omitted.

Damage is unavoidable, we can only hope that it happens to someone deserving. Innocent individuals and pension funds still have time to retreat; if they don't it will be their fault.

We are moving towards gerontocracy - if pension funds will have large losses it’s very likely that young, working age people will be taxed extra heavily to keep the QOL of pensioners.

That would likely lead to a revolution: Millennials are 30-45 and they’re not in a good place; neither is Gen Z.

We’re already seeing revolutions elsewhere — and it’s likely that trying to loot them further by generations who sold out the nation will simply lead to social collapse.

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#234

Post by crazygringo »

mixedbit wrote: post #220

Here is money printing scheme that looks to be at work: Initial situation: * Big corp M has X$ in cash where X is huge Big Corp M invest X$ in AI startup O, with a provision that O needs to use most of the money to buy cloud infrastructure from M to power AI models. End situation: * Big corp M has X$ wort of shares in O, the value of which will rapidly grow * Big corp M cloud division has ~X$ in extra revenue The dea…

> The deal automatically turns X$ into ~2X$ in books.

No it doesn't. The revenue it gets back is valued only at a fraction, because it's only worth its profit. Revenue != profit.

And your "the value of which will rapidly grow" is doing all the work here. That's not guaranteed. It might collapse as well.

It's not money printing at all. It's tying up cash long-term in exchange for a much smaller amount of profit short-term. Which is risky but entirely normal.

Nothing "money printing" about it.

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#235

Post by crazygringo »

> Two weeks ago, Nvidia Corp. agreed to invest as much as $100 billion in OpenAI to help the leading AI startup fund a data-center buildout so massive it could power a major city. OpenAI in turn committed to filling those sites with millions of Nvidia chips. The arrangement was promptly criticized for its “circular” nature.

That's not a "circular" deal, that's a... regular deal.

I genuinely don't understand the criticism here. Every business deal is -- I'll do something for you, you do something for me, and we'll both be better off. That's the free market.

Regardless of whether AI is a bubble, this is just business as usual.

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#236

Post by rco8786 »

xpuente wrote: post #153

This is going to end badly — and soon. It’s ironic that catastrophic forgetting (i.e., the inability to perform continuous learning) and hallucinations (i.e., the failure to recognize when a prediction is unfounded) won’t be the causes of the crash, but rather greed and stupidity.

Has greed and stupidity ever not been the underlying cause of a financial bubble?

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#237

Post by [deleted] »

jongjong wrote: post #207
tim333 wrote: post #206

Earlier quoted context omitted.

You can fake profits. Company A hands $1m to company B to buy equity in it. Company B hands the $1m to A to run ads on A. Under GAAP (normal accounting) A has a profit. In reality are they profiting? Who knows - it depends how A does as a business.

Damn. Didn't think of that. Seems I have a very naive definition of 'profit'. It's crazy how all these small subtleties in definitions of various terms can create something so abominable in the aggregate. Makes one want to reach for a tinfoil hat. Not sure I can even trust the company which makes the tinfoil at this point.

[deleted]

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#238

Post by sailfast »

HelloNurse wrote: post #182
Sam6late wrote: post #93

Earlier quoted context omitted.

This is How Larry Elisson beat Musk for a short while although Oracle was struggling.' The deals among Oracle, Nvidia, and OpenAI have raised concerns about their circular and potentially risky nature. Oracle is reportedly spending tens of billions on Nvidia's advanced chips, Nvidia plans to invest up to $100 billion in OpenAI, and OpenAI uses Oracle's cloud infrastructure through Microsoft's Azure, creating a closed…

If this means that the fall of OpenAI will cause Oracle and Nvidia to crash and downsize, bubbles aren't completely bad.

Sure who cares if we wipe out 15% of everyone’s retirement right as long as it’s got some schadenfreude involved.

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#239

Post by christophilus »

mythz wrote: post #106

All clearly designed to cash in on the speculative value being given to AI companies. Strategically I thought OpenAI's deal of getting 10% of AMD for driving their stock price to $600 was a pretty clever way of creating $97 Billion from nothing - effectively paying for the GPUs they'd purchase. At the same time I would've thought this insider pump and cash-in strategy would be somehow illegal, but I guess anything go…

These sorts of shenanigans happen under whatever administration happens to be in office at the end of a long business cycle and near the frothy peak of a hype cycle. And that frothy peak can be quite tall and last for years.

Re: OpenAI, Nvidia fuel $1T AI market with web of circular deals

#240

Post by mixedbit »

crazygringo wrote: post #234
mixedbit wrote: post #220

Here is money printing scheme that looks to be at work: Initial situation: * Big corp M has X$ in cash where X is huge Big Corp M invest X$ in AI startup O, with a provision that O needs to use most of the money to buy cloud infrastructure from M to power AI models. End situation: * Big corp M has X$ wort of shares in O, the value of which will rapidly grow * Big corp M cloud division has ~X$ in extra revenue The dea…

> The deal automatically turns X$ into ~2X$ in books. No it doesn't. The revenue it gets back is valued only at a fraction, because it's only worth its profit . Revenue != profit. And your "the value of which will rapidly grow" is doing all the work here. That's not guaranteed. It might collapse as well. It's not money printing at all. It's tying up cash long-term in exchange for a much smaller amount of profit short…

To be precise I wrote 'in books' which record also revenue, not just profits. Increasing cloud revenue is one of the things that drives big corps share price up, the missing bit is that this revenue comes from big corps themself. The growth investors mantra is that as long as revenue is increasing rapidly, they don't care much about today's profits, this is why so many unprofitable companies have crazy high valuation.
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