[vb-8448]

My understanding is that it's not about the money itself but the model:

- you fund a new company and sign long terms contracts with it - this new company uses the money you gave it and a lot of debt (backed by long term contracts) to build datacenters and buy a lot of GPU - your figures look great

What happens when they run out of debt or funds? If they reach some kind of profitability it's not a big deal, but if not ...

EDIT

Forget to mention the buyback of unused capacity problem: what happens to your figures when you have to buy back tons of unused GPUs?

[marcosdumay]

Yes, circular financing is not by itself a problem.

It being that size, lasting for that long, and the total lack of viable products created by it are the problem. Financing only adds leverage, that makes every loss or profit larger.

[aurareturn]

  - you fund a new company and sign long terms contracts with it - this new company uses the money you gave it and a lot of debt (backed by long term contracts) to build datacenters and buy a lot of GPU - your figures look great

Coreweave and Nebius think this is a great business model. Their lenders also think this can work. It's not the fault of Nvidia.

If their business model thinks they can make a profit doing it this way, why stop them?

The core problem here seems to be that people think your supplier having an equity stake in your company is wrong or risky.

[vb-8448]

> Coreweave and Nebius think this is a great business model.

It's irrelevant.

> If their business model thinks they can make a profit doing it this way, why stop them?

I don't think someone needs to stop them, but there are some legit questions that need an answer:

- what happens to all these companies when growth decelerate or stop?

- what happens to nvidia stock when it has to buy back unused gpus?

- what are the risk that a sectorial financial crisis turn into a major economic crisis?

[SecretDreams]

> The core problem here seems to be that people think your supplier having an equity stake in your company is wrong or risky.

If these were all private entities, I think it'd be okay.

But they're public entities and they're using the pittance of investment as a force multiplier on their stock price, which they're then regularly using to raise capital.

A lot of dumb money in retail investors (as well as corporate) are a big reason this valuations bubble is occuring - which is really the elephant in the room. It's not that the tech isn't real. It's that the valuations behind it have already priced in maybe a decade of profit that hasn't come close to materializing for the LLM vendors; although, the shovel sellers and makers are doing phenomenal - and they have a vested interest to keep the party going with many sweetheart financing/equity deals.

[aurareturn]

The actual money is coming from big tech profits, debt, and rapidly growing AI revenue (Anthropic growing from $9b ARR to $60b+ ARR in a few months). A very small percentage is coming from Nvidia.

And before someone tells me AI demand is fake and circular, my company is spending thousands on Anthropic a month, up from $0 in 2025. And no, we're not getting scammed by Anthropic or tokenmaxxing for no reason. We are getting value. At minimum, my company is not part of this circular thing.

[GhastBartender]

> my company is spending thousands on Anthropic a month

The problem is that this is simply not enough. They need you to spend tens of thousands, probably closer to hundreds of thousands, before the numbers start making sense.

> At minimum, my company is not part of this circular thing.

You're in the blast radius. And if you don't have a plan for "what if Anthropic hikes the API rates by 10x or worse", you're in the kill zone.

[aurareturn]

Anthropic just made a profit. So it does seem to be enough.

[SecretDreams]

Anthropic and OAI are both looking for 1T valuations. Anthropic is projected* to make $500mil operating profit off 10bil annualized revenue. They need to grow these numbers 10-50x more for the valuation they're seeking to make sense.

Tough pill to swallow given they lack a moat and their compute is being subsidized by the companies they lease it from, all of which are INVESTED in Anthropic and have a desire for their growth story to look good because when they IPO it gives those same investors a better shot at making their money back.

That's the circular aspect of this whole scheme. Nobody makes their money back if the LLM company valuations get more realistic.

[uncivilized]

What value?

[lqstuart]

I’m at a very fast growing startup with real revenue and Fable has let us avoid hiring probably 6-10 full time software engineers with full salary and benefits. We’re spending nowhere close to that. I’m the hiring manager and I’m closing the reqs.

So.. great news for Anthropic, I’ll go ahead and let the elephant in the room go unaddressed

[uncivilized]

6-10 engineers for a startup seems suspect. Is this some sort of web app where there would be lots of training data? I’m not a web developer so I don’t know what else to call it besides web app or SaaS or whatever it’s called in that world.

[derangedHorse]

> But they're public entities and they're using the pittance of investment as a force multiplier on their stock price, which they're then regularly using to raise capital.

That's not how that works. Their stock price is not directly correlated with them raising capital since Nvidia has not issued new shares (or sold shares on the open market) since their IPO. Their corporate bond is also not based on, or relies on, the stock price since they must be paid back in cash.

[brookst]

This is not remotely new. When I worked at Intel ~20 years ago, Intel Capital invested in startups that would buy Intel hardware. Some of them succeeded, some did not.

But "invest in companies that may grow your own TAM" is an ancient strategy. Sometimes it works, sometimes it doesn't (like any strategy).

I'm not disagreeing with you, just saying it's business as usual.

[georgemcbay]

I don't think its really the novelty of the situation that has people worried, its the scale of it and how that scale impacts the speed at which billions of dollars of market value could poof away when/if the music stops.

[Lerc]

I don't think it is a Novelty to people in the sector but it is a novelty to people hearing about it from a YouTube video.

People have always had difficulty understanding large scales.

I don't feel that I have the expertise to analyse business structures like these accurately and impartially, yet I am under the impression that I have a better understanding than many who confidently talk about it and preach the end is nigh.

Even if the end is,in fact, nigh. It will not render their reasoning sound. They will have been right more by coincidence than judgement.

[Grombobulous]

I think a whole lot of people understand quite well the difference in scale in this era compared to past eras of tech industry investment.

Webvan, Pets.com, eToys.com, Kozmo.com…all these dot com busts maxed out at less than 0.3 billion dollars in investment/IPO scale before they went under. A good amount of these share similarities with the AI bubble with a lot of them promising to be the e-commerce infrastructure of the future with “unlimited potential” as brick and mortar purchases were all predicted to move online. Webvan was going to be the automated warehouse of the future, for example.

Even the successful giant unicorns look minuscule in comparison. YouTube’s total investment was under $12 million before Google bought it for $1.65 billion, which looks like peanuts compared to these Hertz rent-a-server companies.

SoftBank dumping $8 billion into Uber looks positively quaint by comparison.

[lostlogin]

For anyone else wondering, TAM seems to be ‘total addressable market’ if my searching is accurate.

[fragmede]

It is. If you're interested in learning more, after the TAM, there is SAM and SOM. SAM is Serviceable Addressable Market, the part of the market that is realistic for you to target with where you are right now with what you've got. Finally, then SOM is Serviceable Obtainable Market. SOM is the number with the budget, competition, and sales, that you realistically think you can get.

[philipallstar]

> If they reach some kind of profitability it's not a big deal, but if not ...

What is the end of this sentence?

[14113]

There are two types of people. Those who can extrapolate from incomplete data, and

[taneq]

…those who understand binary? ;)

[InsideOutSanta]

... then it is a big deal.

[philipallstar]

Okay, but why? What's the actual thing that will happen?

[InsideOutSanta]

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.

[aswegs8]

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.

[InsideOutSanta]

> 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.

[vasco]

It's not circular!

And if it is, it's not a problem!

And if it's a problem, it doesn't affect me!

[roenxi]

Those are 3 thresholds that a situation typically has to meet before people get upset about something. Arguably the 3rd one is not great, but the other two are just obvious and basic requirements. In this case even that last one is fine, the financial system is set up so that, in theory, other people losing money doing something stupid is a problem firewalled to just them.

[emil-lp]

Well, in this case, it's your pension.

[roenxi]

It isn't my pension, and if it was my pension the major issue would be that I was relying on people I think are untrustable with money to fund my retirement. That is one of those ideas so strategically bad that no tactical success or failure matters. I personally wouldn't choose to let more than a fraction of my money get pushed into that vortex. It looks like a disaster waiting to happen (hopefully I'm wrong and everyone goes home happy).

As a rule of thumb in life, if someone is managing your money then you should by and large agree with their judgement of the markets.

[drawfloat]

It’s beyond naive to think this falling apart will not hit the jobs and finances of ordinary people who never touched ai investment.

[CrimsonRain]

If you think it's a problem, short NV or buy competitors who are not doing this or don't buy their share at all. If you're right, they'll get burned soon enough and it's none of your business!

[vb-8448]

To make money on financial markets it's not just about "if" but also "when" ... and even if I think it's problem (which I didn't say) i for sure don't know "when"!

[wizzwizz4]

Someone had a model combining shorting with investigative journalism, a while back. They'd short, then release evidence showing that the company was way overvalued, then make their money when the stock price dropped.

[CrimsonRain]

i think you are talking about hindenburg research center

[wizzwizz4]

I was, but Wikipedia tells me it was preceded by Muddy Waters Research, and followed by Hunterbrook, both of which (unlike Hindenburg) are still active.

Interestingly, the Hunterbrook Wikipedia article says that Hunterbrook is unique, and the Muddy Waters Research Wikipedia article lists loads of other organisations. Perhaps someone should investigate…?

[aswegs8]

Time to short them, you say?

[0xc0c0c0]

Markets can remain irrational longer than you can remain solvent.

[CrimsonRain]

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.

[tliltocatl]

> 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.

[CrimsonRain]

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.

[tliltocatl]

By starving off access to cheap DRAM for everything that isn't AI?

[lukan]

"(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.

[CrimsonRain]

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?

[KumaBear]

If it goes bust who bails them industry out?

[CrimsonRain]

Nobody should do that. Let them burn including the investors who allowed this.

[Muromec]

Somebody should go in jail big time if it has be bailed out

[trinsic2]

We bailed out the banks during the housing crisis and nobody went to jail. And look at where we are at now? In 20 years we are going to have smart cities run by tech barons where we are all serfs

[Muromec]

Smart cities with tech barons won't ever happen for a lot of reasons, mainly because the government always wins. Tech bros don't have the political and military means to sovereignty . Dictatorship, civil war, corruption with a side dish of genocidal tendencies -- that's on the menu okay.

Besides, I don't think serfom has to do anything with it, as you have to keep people in, while the current agenda is all about keeping people out.

[boesboes]

Heavy bags huh?

[CrimsonRain]

idc how market goes. my bag is hold for 15 years.

A crash is just another chance of buying more.