[randyrand]

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.

[thewebguyd]

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 loop starts to unravel, and fast. CoreWeave, Oracle, all the "neoclouds" etc. will blow up, and there could potentially be a ton of PE debt that is now under-collateralized due to depreciation, causing a pretty big haircut to basically all of private credit.

[spwa4]

But if there is one thing trivial to see then it is the connection between loaned money and stock prices AS A WHOLE.

https://www.sciencedirect.com/science/article/abs/pii/S01651...

It's stronger for momentum stocks, but it's not like something like a gold mine escapes from it either.

[maxdo]

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?

[thewebguyd]

> 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 (for example), OpenAI goes to Oracle and says "I promise I'll pay you, at some point in the future, $1T to build my datacenters" and then Oracle funds that build out with debt, and then OpenAI goes bust, or just doesn't make enough money or can't raise enough cash to start making payments on their IOU, Oracle now also can't pay their debt and will eventually go bust, and now the private credit market takes a huge haircut, potentially bankrupting entire funds (like what happened in '08).

[MSKJ]

I'm sure the bailouts are already getting negotiated

[zyx321]

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.

[maxdo]

This is the narrative I completely do not Get. The ai is here , it will eat lots of markets . There’s no way back . If one llm vendor will go bankrupt, their capacity will be picked up. In fact before that it will be absorbed by other vendors . If let’s say OpenAI will fall out of race , it will start slowly on the course of a year selling their commitments to the winner. It’s still unhealthy still tens of billions will evaporate but this is not something can cause apocalypse

[javier2]

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

[no_op]

Yeah, the "circular" language is obviously intended to imply unsustainability, as a system without external inputs must eventually run down. But this system is intended to have external inputs, revenue from customers that buy the services of the data centers. So the fundamental issue is just whether there will be enough such demand to justify the scale of the build-out.

These deals give Nvidia more exposure to that, in both directions. Certainly Nvidia shareholders should be cognizant of this. But nothing structurally problematic is occurring here.

[oliwarner]

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.

[georgemcbay]

Its only a problem if you think about it, just don't think about it and no problem!

[randyrand]

It's only a problem if you dont think about it.

[Analemma_]

They're selling GPUs in exchange for scrip which may or may not be able to pay Nvidia's operating expenses depending on whether AI has a profitable business model. This isn't hard to understand.

[thewebguyd]

No, Nvidia is getting paid. Nvidia puts down a fraction of equity cash, and the recipients are taking that to PE to finance debt, using the GPUs as collateral. So Nvidia pays $1B, receiving company uses it to secure $10B in debt and buys $10B worth of GPUs.

Nvidia gets real cash, pays TSMC, etc.

The people in real trouble are companies like CoreWeave, Oracle, etc. that took an IOU from OpenAI (for example) to start a buildout, entirely debt financed. It works out so long as demand keeps going up, but the moment the music stops and that debt comes due and there's no revenue to pay it, game over.

Nvidia's concern isn't not actually getting paid, it's being faced with a glut of cheap, depreciated GPUs flooding the market impacting their future revenue. They'll live.

But OpenAI, not being able to pay CoreWeave, for example, that IOU, and then private credit coming for the debt payments from CoreWeave, is what would start the chain reaction. We may actually get to live to see Oracle fall.

[wonnage]

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

[thewebguyd]

> 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 sales, and now CoreWeave is saddled with debt based on an IOU from the AI labs.

Nvidia is insulated from the debt exposure, but the companies doing the datacenter build outs are the ones in real trouble if the house of cards comes falling down.

[wonnage]

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

[Marciplan]

are you just heavily invested in Nvidia to not see this as problematic?

[ar_lan]

We all are, mostly.

[amazingamazing]

Nope. The simplest rebuttal to all of this is: why dont they pay cash?