[ElProlactin]

Your GM/Hertz comparison is not applicable here. Under GAAP accounting rules, GM wouldn't be able to book those as sales because it was obligated (or likely) to buy back the asset. Under the rules, this means the transaction gets treated as an operating lease. The cars would stay on GM's balance sheet and the revenue would get recognized over the lease period.

The CoreWeave-Nvidia deal is not the same because Nvidia is not buying back the asset (the GPUs). CoreWeave has title to the chips and if they're worth nothing in 5 years, that's a problem for CoreWeave and its lenders.

What Nvidia obligated itself to was buying compute capacity, which Nvidia would be able to use for its own workloads.

In the GM/Hertz analogy, this is like GM selling Hertz the cars and saying "If you can't find renters for them, we'll rent them from you at market rates, up to $x." Under GAAP accounting rules, GM would book the car sales as revenue, the commitment to rent would be a purchase obligation, and if the rentals ever occurred, GM would incur the costs as an operating expense.

There is a question of whether the CoreWeave-Nvidia deal structure is sensible economically, and how much risk is being created. But there's no GAAP accounting question here. At all.

[vannevar]

Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any potential future obligations as "ordinary business costs". But are they really ordinary, or is this potential obligation to buy compute actually much greater than Nvidia's actual future needs?

[ElProlactin]

> ...the arrangement incentivizes Coreweave to buy chips it doesn't need

You state this as fact but this is just cynical speculation on your part.

The less cynically speculative analysis is that Neoclouds like CoreWeave are rushing to build datacenters because their whole business is based on the premise that AI is a revolutionary technology and there will be massive durable demand for AI compute for the forseeable future.

CoreWeave generated over $2 billion in revenue in Q1 and has a nearly $100 billion contracted revenue backlog. This is not an imaginary business with no demand.

Nvidia has invested a very modest amount of money in CoreWeave equity. Dividing its revenue by the number of days in a year, Nvidia generates about $2 billion in revenue in ~3 days, and $2 billion represents 0.04% of Nvidia's market capitalization.

Are there risks here? Yes. Is the circularity potentially problematic? Yes. But is it also true that some of these arrangements are being used to make hyperbolically apocalyptic claims? Yes.

> You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case...

You're absolutely correct here, which is a source of risk for Nvidia. That doesn't change the accounting as far as GAAP is concerned though, and you aren't looking at the big picture.

The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia. Nvidia will generate about $190 billion in free cash flow this year alone.

[vannevar]

>> ...the arrangement incentivizes Coreweave to buy chips it doesn't need

>You state this as fact but this is just cynical speculation on your part.

Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101.

>The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia.

As noted earlier, the $6.3B is a floor, not a ceiling.

>Nvidia will generate about $190 billion in free cash flow this year alone.

Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"

[ElProlactin]

> Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101.

There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop. But that's not how it works.

CoreWeave buys chips from Nvidia; Nvidia has agreed to buy up to $6.3 billion in unused compute capacity through 2032. It's not buying back the chips, etc.

CoreWeave has raised way more debt (over $35 billion) to build out compute than what Nvidia has backstopped (up to $6.3 billion). In other words, CoreWeave is spending a ton to buy chips, build datacenters, buy electricity, etc. and Nvidia's backstop, while important, doesn't come close to backstopping all the investment CoreWeave is making to acquire its compute capacity.

If demand for compute dries up, CoreWeave and its lenders are going to be on the hook for way, way more than Nvidia is.

> As noted earlier, the $6.3B is a floor, not a ceiling.

You keep repeating this but it's factually incorrect. The $6.3 billion is the maximum.

https://finance.yahoo.com/news/coreweaves-6-3-billion-backst...

As I've noted, $6.3 billion works out to a few days' revenue for Nvidia.

> Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"

This is such a strange question.

Nvidia reported revenue of ~$215 billion for FY 2026, and ~$96 billion in free cash flow.

I don't know how to put it more simply: this is real money. And gobs of it. It's not made up.

The question you seem to really be asking is: is the demand for chips that is driving this revenue sustainable, or will it collapse, leading to a massive rapid drop in revenue? That's a completely different question but just FYI: Nvidia reported $81.6 billion in Q1 FY 2027 revenue so...

[vannevar]

>There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop.

I'm suggesting nothing of the kind. Nvidia is essentially guaranteeing CoreWeaves return on the chip investment. If someone offered you that deal, regardless of what the investment was, you'd buy as much as you possibly could.

>If demand for compute dries up, CoreWeave and its lenders are going to be on the hook for way, way more than Nvidia is.

True, but irrelevant. The return on investment incentive is independent of how much other debt you have, you'd still buy every unit you could.

>>But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?" >This is such a strange question.

Yet it's the actual question being discussed in the article, and not whether the arrangements are GAAP-compliant. Saying the revenue is real, and that there are "gobs" of it, doesn't make it so. For the record, I'm sure much of it is real. But I'm equally sure that much of the demand is artificial, driven by the business practices we're talking about. I think the root of the problem is that you sincerely believe that if revenue is accounted for in a GAAP-compliant way, it must be real, organic growth driven by real demand. By that standard, you can say that Beanie Baby demand was "real". But it wasn't tied into any underlying economic utility, it was a speculative bubble. So is the AI infrastructure market, just embedded in a much more complex system of deals, as we've been discussing.

>The question you seem to really be asking is: is the demand for chips that is driving this revenue sustainable, or will it collapse, leading to a massive rapid drop in revenue?

Yes, this also is the question really being asked in the article. Among the factors to take into account when judging sustainability are whether the sales are for cash or credit, and whether those sales are being incentivized extrinsically (like, say, guaranteeing ROI).

[ElProlactin]

> Nvidia is essentially guaranteeing CoreWeaves return on the chip investment.

You cannot say that Nvidia is guaranteeing a return on investment for CoreWeave without showing the actual math for a positive ROI.

CoreWeave has over $35 billion in debt, most of which has been used to build out datacenters. Nvidia's backstop is capped at $6.3 billion, and only through 2032.

You need a new theory here.

> Saying the revenue is real, and that there are "gobs" of it, doesn't make it so.

I'm really sorry, but with all due respect, this is getting into sillyland. Q1 2027 revenue of $81.6 billion is not a made up number. The $58.2 billion in net earnings is not a made up number. The $20 billion Nvidia returned to shareholders via share repurchases and dividends is not a made up number. The $80 billion the company added to its share repurchase program is not a made up number. The $50+ billion in cash and short-term investments on the balance sheet is not a made up number.

If every dollar in was being used to drive a dollar of new demand, Nvidia's financials could not look like this.

Now is there circularity in the AI market? Yes. Are there legitimate reasons to pay attention to it and be concerned? I think "yes" is a reasonable answer. But you cannot claim this is all "fake" and expect people to take you seriously because none of the financials supports it.

[dannyw]

Great explanation. Maybe another metaphor, it’s like a builder/developer buying land from someone. They own the land, they get the title, it’s theirs.

The land owner saying “hey if you can’t sell all the apartments we’ll buy what’s left” doesn’t in any way negate the sale or revenue accounting as per GAAP etc.

[Calamity]

I mean, okay sure, but modify the counterexample they suggested slightly and then it's the same thing.

If GM promised to "rent out" (instead of buy back) the cars it sold to Hertz as a backstop (if not enough customers are renting), then the comparison is apt.

[ElProlactin]

No, it isn't and this is simple GAAP accounting.

If GM sold cars to Hertz and then agreed to rent them from Hertz if Hertz was unable to rent them, it would not be consignment. It would be a sale and then purchase commitment, with the cost of the rentals taken as an operating expense.

Is the CoreWeave-Nvidia arrangement "good"? Time will tell. But there's no accounting issue here and even non-accountants can educate themselves on the subject because the least effective way to criticize these deals is to make accounting arguments that don't align to actual accounting principles.

[socialcommenter]

> there's no accounting issue here

This seems like a really narrow interpretation of what's going on. Is there any room to doubt/discuss whether GAAP rules could be improved? Or why the deal has been structured this way?

Why shouldn't we look through this arrangement? NVIDIA isn't in the business of purchasing outsourced GPU time. They could make better use of unused GPUs by repurchasing them for resale to another customer. If they're not doing that, it already seems likely that they specifically did this to guarantee that the revenue could be recognised.

Sure, NVIDIA's risk exposure could (legally) sit on their books without being recognised until it's already too late. That doesn't mean we shouldn't scrutinize them.

[ElProlactin]

> Is there any room to doubt/discuss whether GAAP rules could be improved?

Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.

CoreWeave is buying chips from Nvidia, paying Nvidia full price, and taking title to them. Nvidia has no right to take them back. It instead has a potential obligation, subject to various conditions, to purchase a separate service (compute) from CoreWeave.

GAAP rules are updated on a regular basis. If you want different GAAP rules for this type of deal, you at least need enough knowledge about accounting to make a sensible suggestion.

> NVIDIA isn't in the business of purchasing outsourced GPU time.

This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made.

So yes, these types of arrangements should be scrutinized. But to do so intelligently requires a basic grasp of accounting rules and the business models.

[socialcommenter]

I'm not the commenter claiming that this currently violates GAAP - that's someone else.

To summarise my opinion, subjectively it seems like a better distinction could be made in GAAP to look through this agreement and others like it. (Hypothetically if Hertz agreed to rent back rather than repurchase, like mentioned in a previous comment, that would also be suspect). But I'm not the one to propose what the preconditions would be.

> Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.

It can be legal and still be subterfuge. Everyone involved in the deal has a clear incentive to ensure Coreweave gets to recognise revenue, and gets to show growth on paper. It's the same reason why SoftBank paying OpenAI $800mln for services in 2025 stinks a bit - they don't need the services but the deal goes ahead anyway.

> This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made.

Sorry - you're entirely correct here. Though remember we're talking about a scenario where Coreweave aren't able to sell their capacity. If there's such a dramatic hole in demand, who are NVIDIA selling their compute to? This repo agreement won't give NVIDIA capacity that they need in the 90% of cases but will force them to purchase capacity they won't need in the 10%.

s/10%/some other probability/

[ElProlactin]

> To summarise my opinion, subjectively it seems like a better distinction could be made in GAAP to look through this agreement and others like it.

There's two things here: accounting and disclosure.

The accounting, which is what GAAP deals with, really doesn't seem problematic. CoreWeave is giving Nvidia cash for the chips and taking title to them. There's no associated repurchase right or obligation. So treating this as a sale and booking the revenue is the most sensible accounting approach. Trying to make it into something it's clearly not because it makes some people feel better isn't sensible.

I think the more important discussion is around disclosure: how much information Nvidia should be required to provide about its relationships with companies like CoreWeave, and where and when. Right now, we have to paint the picture based on multiple disclosures. We know about the equity stake through a 13F. The backstop was in an 8-K that was filed two years after the agreement was signed. The equity stake is not high enough that most of the rules around "related party" disclosures come into play.

I suppose you could make the argument that the market obviously sees the circularity here despite the patchwork disclosures that apply, so the circularity is ostensibly being priced in to the stock prices, debt, etc. But there's a legitimate argument that the market would be better served if disclosure was earlier and cleaner.

Even so, none of this would prevent Nvidia from engaging in these types of transactions because there's nothing inherently illegal about them.

[prjkt]

> If there's such a dramatic hole in demand, who are NVIDIA selling their compute to?

NVIDIA itself is also training foundation models (and open-sourcing them). If there is excess compute available, NVIDIA can increase the scale of such models.

[vannevar]

>Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.

Looking back up the thread, I don't see anybody screaming about anything. And I think "accounting subterfuge" is a broad concept that could certainly include GAAP-compliant but nonetheless suspect business practices.

[vannevar]

>CoreWeave is buying chips from Nvidia, paying Nvidia full price

I'm not sure this is the case. They are agreeing to pay them some price, it's not clear whether they are getting them for cash or credit but I strongly suspect it's on credit. That doesn't change the GAAP compliance, does it? As I said before, I think they are exploiting an accounting loophole, regardless of whether it is strictly compliant.

[ElProlactin]

> I think they are exploiting an accounting loophole...

With all due respect, you haven't articulated what that accounting loophole is. I've explained why the examples/comparisons you've made aren't equivalent according to GAAP.

From everything I've read and seen disclosed, CoreWeave pays full price for its Nvidia chips. Nvidia is not financing the sale. CoreWeave has taken on large amounts of debt financing from unrelated third parties. It's highly like that the Nvidia backstop helped CoreWeave get better financing terms, but Nvidia isn't actually providing the financing.

If CoreWeave is paying cash and taking title to the asset, and Nvidia has no obligation or right to take the asset back, it is GAAP 101 that the transaction would be booked as a sale because...that's what it is.