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This is throwing more cards on the house of cards. Nvidia is “investing” in OpenAI so OpenAI can buy GPUs from NVidia. Textbook “round tripping.” I generally l
by JCM9 1y ago
This is throwing more cards on the house of cards. Nvidia is “investing” in OpenAI so OpenAI can buy GPUs from NVidia. Textbook “round tripping.”
I generally like what’s been happening with AI but man this is gonna crash hard when reality sets in. We’re reaching the scary stage of a bubble where folks are forced to throw more and more cash on the fire to keep it going with no clear path to ever get that cash back. If anyone slows down, even just a bit, the whole thing goes critical and implodes.
- zitterbewegung 1y agoI do think about this where they are creating a printing / cash burning cycle where both OpenAI keeps on doing raises and Nvidia can get more sales...
- anothermathbozo 1y agoWhat is this a bubble on? What does said bubble collapsing look like?
- Drunkfoowl 1y agoHigh end server gpus and AI roi expectations.
- reactordev 1y agoI think everyone is underestimating the advancements in wafer tech and server compute over the last decade. Easy to miss when it’s out of sight out of mind but this isn’t going anywhere but up. The current SOTA is going to pale in comparison to what we have 10 years from now.
- zer00eyz 1y ago> I think everyone is underestimating the advancements in wafer tech and server compute over the last decade. What advancements? We have done a fabulous job at lowering power consumption while exponentially increasing density of cores and to a lesser extent transistors. Delivering power to data centers was becoming a problem 20 ish years ago. Today Power density and heat generation are off the charts. Most data center owners are lowering per rack system density to deal with the "problem". There are literal projects pushing not only water cooling but refrigerant in the rack systems, in an attempt to get cooling to keep up with everything else. The dot com boom and then Web 2.0 were fueled by Mores law, by Clock doubling and then the initial wave of core density. We have run out of all of those tricks. The new steps that were putting out have increased core densities but not lowered costs (because yields have been abysmal). Look at Nvidia's latests cores, They simply are not that much better in terms of real performance when compared to previous generations. If the 60 series shows the same slack gains then hardware isnt going to come along to bail out AI --- that continues to demand MORE compute cycles (tokens on thinking anyone) rather than less with each generation.
- shawabawa3 1y agoAI and tech companies Collapse might look a little like the dot com bubble (stock crashes, bankruptcies, layoffs, etc)
- wongarsu 1y agoAnd it's worth reiterating that a bubble does not mean the technology is worthless. The dot com bubble collapsed despite the internet being a revolutionary technology that has shaped every decade since. Similarly LLMs are a great and revolutionary technology, but expectations, perception and valuations have grown much faster than what the technology can justify These hype cycles aren't even bad per se. There is lots of capital to test out lots of useful ideas. But only a fraction of those will turn out to be both useful and currently viable, and the readjustment will be painful
- HarHarVeryFunny 1y agoPlus unused dark fiber = unused AI data centers and power generation capacity.
- bitmasher9 1y agoNvidia is giving OpenAi money (through investment) to buy Nvidia chips. The bubble is that Nvidia got that money from its crazy high stock price, the extra investment raises OpenAi’s evaluation and the increased sells raises Nvidia’s evaluation. If the valuations see a correction then spending like this will decrease, further decreasing valuations. Bubble collapsing looks like enshittification of OpenAI tools as they try to raise revenues. It’ll ripple all throughout tech as everyone is tied into LLMs, and capital will be harder to come by.
- drexlspivey 1y ago> The bubble is that Nvidia got that money from its crazy high stock price, This is totally False, NVDA has not done any stock offerings. The money is coming from the ungodly amount of GPUs they are selling. In fact they are doing the opposite, they are buying back their stock because they have more money that they know what to do with.
- JCM9 1y agoA company buys back its stock if it thinks the stock is underpriced. Otherwise when “you have more money than you know what to with” you give it to your shareholders via a dividend. A concept mostly forgotten by tech companies.
- drexlspivey 1y agoA company buys back stock because distributing dividends incurs a 30% withholding tax.
- rhetocj23 1y agoSorry guys but this is why I dont want to see many finance related posts here, because very few know what they are talking about. Buybacks are the preferred method of RETURNING CASH to shareholders, because dividends historically have been sticky. Buybacks are flexible. Buybacks are also done to optimise the debt ratio, to minimise the firms cost of capital and thereby maximizing firm value.
- jenkinomics 1y agoI think ultimately the conclusion that we're in a bubble is bad analysis. It jumps over a chasm and assumes that analogy to past historical situations allows us to draw conclusions. This isn't a bubble. This is the collapse of 300 years of modern capitalism into corporate techno feudalism. This won't crash and lead to a recession or depression. We are at the end game. Look around you. Capital is going scorched earth on labor. They are winning. Cost of living in metropolitan areas is exploding, and most of us will end up begging for scraps in peripheral areas. This is the result of everything the elites have been working towards for the past few decades. Climate catastrophe is the cherry on the cake: they will shock therapy us into the last few bits. There will be corporate citizenship that enables one to live as a demi-god at the behest of the owners, and survival in the wastelands for the rest of us.
- jononor 1y agoI do not think the leveraging is going to end there. I suspect this will be used to justify/secure power generation investments, possibly even nuclear. Likely via one or more of the OpenAI/Altman adjacent power startups.
- amluto 1y agoOn the bright side, if lots of power capacity is added and most of the GPUs end up idle, then there might be cheap power available for other uses.
- holoduke 1y agoAnd computing in general gets cheaper.
- lawlessone 1y agoheating our homes next winter with clusters of h100s
- jazzyjackson 1y agoPower generation is not a monolithic enterprise. If more supply is built than needed, certain suppliers will go bankrupt.
- lucianbr 1y agoWhat are the chances suppliers will go bankrupt but the plants get sold and still produce power?
- ogaj 1y agoThey may, but that doesn’t mean that the capacity disappears. It may require some assumptions about USG willingness to backstop an acquisition but it’s not a significant leap to think that the generation capacity remains in (more capable?) hands.
- resters 1y agoAt least the deal is denominated in watts rather than currency which may hyperinflate soon.
- gdiamos 1y agoIt forces us to confront a question. How much investment and prioritization in scaling laws is justified?
- aldousd666 1y agoRegardless of the scaling hypothesis, they need the compute to serve the models at scale.
- Jayakumark 1y agoreminds me of this image https://www.reddit.com/media?url=https%3A%2F%2Fi.redd.it%2F692s4wcpxuof1.jpeg https://www.reddit.com/media?url=https%3A%2F%2Fi.redd.it%2F6...
- paxys 1y agoIt would be amusing if it also wasn't so accurate.
- lotsofpulp 1y agoI didn’t see the step where Larry has to sell any stock, and hence puts downward price pressure on Oracle share prices. What is the source of the cash in steps 3, 4, and 7?
- truelson 1y agoUltimately, debt will fuel this. Oracle can't pay with cashflow.
- mcny 1y agoIt is us, index fund owners :clown: Disclaimer: I also have a small amount of money in vanguard IRA
- lotsofpulp 1y agoAccording to the image of the steps, Oracle’s share price is going up, presumably more than it would have without engaging in these steps. How can that cost index fund owners? They would be benefiting from the share price increase.
- wmf 1y agoCredit.
- Lalabadie 1y agoHe doesn't have to sell. He can finance the deal with debt backed by his newly risen stock as collateral. Then the debt is used to further inflate the price of the stock. The flywheel metaphor is pretty apt.
- vessenes 1y agoAlmost every model trained by the majors has paid for itself with inference fees. I’m not saying there isn’t a bubble, but I am saying if the researchers and strategists absolutely closest to the “metal” of realtime frontier models are correct that AGI is in reach, then this isn’t a bubble, it’s a highly rational race. One that large players seem to be winning right now.
- mossTechnician 1y agoWhich of these model-making companies have posted a profit? I'm not familiar with any.
- vessenes 1y agoThey account internally for each model separately; Dario said they even think of each model as a separate company on Dwarkesh some time ago. Inference services are wildly profitable. Currently companies believe it’s economically sensible to plow that money into R&D / Investment in new models through training. For reference, oAI’s monthly revs are reportedly between $1b and $2b right now. Monthly. I think if you do a little napkin math you’ll see that they could be cashflow positive any time they wanted to.
- deleted 1y ago[deleted]
- jenkinomics 1y agoAgain with the "this is very profitable if you don't account for the cost of creating it?" Then my selling 2 dollars for 1 dollar is a wildly profitable business as well! Can't sell them fast enough! Why does it seem like so many people have ceased to think critically?
- neutronicus 1y agoOpenAI claims that each GPT generation has sold enough inference at high enough margin to recoup the cost of training it. The company overall is still not profitable because these proceeds are being used to fund training the next GPT generation.
- SilverElfin 1y agoI also recall reading that OpenAI is developing its own chips. What happened to that?
- aldousd666 1y agoI don't think the NVIDIA deal is an exclusive one... They can still use TPUs and GPUs and other cloud providers if they like. They may still be planning to.
- pixelready 1y agoThe real question is not whether this is a bubble since as you mentioned even if AI settles into a somewhat useful semi-mainstream tech, there is no way any of the likely outcomes can justify this level of investment. The real question is what are we gonna do with all this cheap GPU compute when the bubble pops! Will high def game streaming finally have its time to shine? Will VFX outsource all of its render to the cloud? Will it meet the VR/AR hardware improvements in time to finally push the tech mainstream? Will it all just get re-routed back to crypto? Will someone come up with a more useful application of GPU compute?
- halJordan 1y agoAi is already in semi-useful mainstream tech. There's a massive misunderstanding on this site (and other neo luddite sites) that somehow there is no "long tail" of business applications being transformed into ai applications.
- lawlessone 1y agoany examples?
- sindriava 1y agoCurrent systems are already tremendously useful in the medical field. And I'm not talking about your doctor asking ChatGPT random shit, I'm saying radiology results processing, patient monitoring, monitoring of medication studies... The list goes on. Not to mention many of the research advances done using automated systems already, for example for weather forecasting.
- AlexandrB 1y agoI'm getting real "put everything on the blockchain" vibes from answers like this. I remember when folks were telling me that hospitals were going to put patient records on the blockchain. As for radiology, it doesn't seem this use of AI is as much of a "slam dunk" as it first appeared[1][2]. We'll see, I guess. Right now I kind of land on the side of "Where is all the shovelware?". If AI is such a huge productivity boost for developers, where is all the software those developers are supposedly writing[3]? But this is just a microcosm of a bigger question. Almost all the economic growth since the AI boom started has been in AI companies. If AI is revolutionizing multiple fields, why aren't relevant companies those fields also growing at above-expected rates? Where's all this productivity that AI is supposedly unlocking? [1] https://hms.harvard.edu/news/does-ai-help-or-hurt-human-radiologists-performance-depends-doctor https://hms.harvard.edu/news/does-ai-help-or-hurt-human-radi... [2] https://www.ajronline.org/doi/10.2214/AJR.24.31493 https://www.ajronline.org/doi/10.2214/AJR.24.31493 [3] https://mikelovesrobots.substack.com/p/wheres-the-shovelware-why-ai-coding https://mikelovesrobots.substack.com/p/wheres-the-shovelware...
- big_toast 1y agoIs this more of an accounting thing? Is there some (tax?) efficiency where OpenAI could take money from another source, then pay it to Nvidia, and receive GPUs. But instead taking investment from Nvidia acts as a discount in some way. (In addition to Nvidia being realistically the efficient/sole supplier of an input OpenAI currently needs. So this gives 1. Nvidia an incentive to prioritize OpenAI and induces a win/win pricing component on Nvidia's GPU profit margin so OpenAI can bet on more GPUs now 2. OpenAI some hedge on GPU pricing's effect on their valuations as the cost/margin fluctuates with new entrants )?
- wmf 1y agoIt sounds like Nvidia has so much cash already that they would prefer to own x% of OpenAI instead.
- jedberg 1y agoIt's interesting how deals like this are politically relevant. Nvidia refused to do deals like this (investing in companies buying large amounts of NVIDIA GPUs) after they got the hammer from Biden's SEC for self dealing due to their investment in Coreweave. But now that there is a new SEC, they are doing a bunch of these deals. There is this one, which is huge. They also invested in Lambda, who is deploying Gigawatt scale datacenters of NVIDIA GPUs. And they are doing smaller deals too.
- throwaway667555 1y agoIt's not round tripping. Economically Nvidia is investing property is OpenAI. It's not investing nothing, far from it.
- glitchc 1y agoDoes this mean they pay for it through consumer GPU sales?
- wmf 1y agoNo, those are a drop in the bucket.
- threeducks 1y agoLast quarter, NVIDIA reported data-center revenue of $30.8 billion and gaming revenue of only $3.3 billion. https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-second-quarter-fiscal-2025 https://nvidianews.nvidia.com/news/nvidia-announces-financia... This also explains why NVIDIA will not sell high VRAM consumer GPUs: it would cannibalize on their exorbitant data-center profits.
- mirekrusin 1y agoIf they won't, somebody else will. And frankly that alone can pop their bubble - it minimizes/locks margins they can ever charge, a margin that is already negative. Apparently for every $1 made they currently pay $2.25?
- stale2002 1y agoDoes anyone in the finance business know how legal this all it? I am hearing terms like "round tripping" being thrown around. A practice where a company sells and buys back its own product to artificially inflate revenue. I'm asking because its not just OpenAI that they are apparently doing this with, instead its with multiple other major GPU providers, like Coreweave. And its just being done all out in the open? How?
- yard2010 1y agoHow I see it - the people with the money make the rules, why would they make rules against themselves?
- stale2002 1y agoYes, but my point is that this almost feels like an Enron case. Things were fine, until they weren't. And then in retrospect the fraud is obvious. I'm just surprised that nobody is yelling to the rooftops about practices that are just so out in the open right now.
- wmf 1y agoIANAL but you can do pretty much anything as long as it's disclosed. The only problem with round-tripping is doing it secretly. As an investor you may decide that round-tripping is dumb but in that case your recourse is to sell the stock.
- raincole 1y agoFirst of all, it's not 'textbook round tripping' at all. The parent commenter is dead wrong but HNers upvote when they see "AI is a bubble." Textbook round tripping is like: OpenAI buys GPUs from Nvidia. And the only reason it buys these GPUs is to resell it back to Nvidia, or just do nothing. It doesn't make it round tripping just because OpenAI is taking investment and buying stuff from Nvidia at the same time. Unless you really believe OpenAI has no intention to use these GPUs for other purposes (like training GPT-6. I know, a crazy idea: OpenAI will train and release a model), it's not round tripping.
- dummydummy1234 1y agoMy thought is think of all the really cheap compute that will be available to researchers. Sure, it will crash but at the end of the day there will be a huge glut of gpus that datacenters will be trying to rent out near cost. I (as a uninformed rando) think that there are a lot of research ideas that have not been fully explored because doing a small training run takes 100k. If that drops to 1000, then there is a lot more opportunities to try new techniques.
- deleted 1y ago[deleted]
- koolala 1y agoWith this level of power usage it might be the opposite. Once they can't subsidize the cost it might increase.
- radium3d 1y agoReally curious how xAI is working out financially. Grok blows me away for coding.
- radium3d 1y agoIt's interesting how profitable Tesla is despite the huge investments in their AI training infrastructure. They seem to be one of the best positioned companies that can maintain enough profitability to be able to afford their AI infrastructure without issue.
- mirekrusin 1y agoGoogle?
- radium3d 1y agoGemini isn’t the best though, I’ve found it not nearly as good as grok
- Rebuff5007 1y agoSure, but its going to be a great plot for the movie that comes out in five years.
- ivape 1y agoYou know you can sell inferencing at near 100% margins, right? More, even.
- outside415 1y ago[dead]
- radu_floricica 1y agoBut real GPUs are being built, installed and used. It's not paper money, it's just buying goods and services partly with stock. Which is a very solid and time honored tradition which happens to align incentives very well.
- mgh95 1y agoWhat revenues do these GPUs generate for OpenAI? OpenAI is not currently profitable, and it is unclear if its business model will ever becomes profitable -- let alone profitable enough to justify this investment. Currently, this only works because the markets are willing to lend and let NVIDIA issue stock to cover the costs to manufacture the GPUs. That's where the belief that we are in a bubble comes from.
- davedx 1y agoOpenAI generates plenty of revenues from their services. Don't conflate revenues with profits
- mgh95 1y agoI don't believe I am. Investors (value investors, not pump and dump investors) provide capital to companies on the expectation of profit, not revenue.
- charcircuit 1y agoSure, and as long the expected profit keeps increasing investors are happy. They don't need to make an actual profit yet.
- humanizersequel 1y agoThey're doing about a billion per month in revenue by running proprietary models on GPUs like these. Unless they're selling inference with zero/negative margin, it seems like a business model that could be made profitable very easily.
- elorant 1y agoWell I hope it crashes so we can get back to normalized GPU prices.
- chairmansteve 1y agoI agree that it is a bubble. But the "round tripping" kind of makes sense. OpenAI is not listed, but if it was, some of the AI investment money would flow to it. So now, if you are an AI believer, NVidia is allocating some of that money for you.
- truelson 1y agoGoing to leave this link here: https://www.hussmanfunds.com/comment/mc250814/ https://www.hussmanfunds.com/comment/mc250814/ By many different measures, we are at record valuations (though must be said, not P/E however). Tends not to end well. And housing prices are based on when mortgages were at 3% and have not reset accordingly. We are in everything bubble territory and have been.
- rapsey 1y agoPeople are quite bearish and the stock market is making all time highs. This is actually a very good sign, because we are far from any euphoria. Always keep in mind the old saying: pesimists get to be right and optimists get to be rich.
- thfuran 1y agoOnly if they're optimistic at the right time and not the wrong one.
- rapsey 1y agoTiming the market is a fallacy. Time in the market is what builds wealth.
- thfuran 1y agoYou're treating a statistical tendency as immutable law. It's true that attempting to time the market is not generally a good investment strategy, but every investment is made at some time, and some of those are very bad times to put money in the market. That it'll probably recover eventually doesn't much help if you've lost everything in the interim.
- rapsey 1y agoWhich is why you invest a percentage of your paycheque not wait to time the market.
- mrandish 1y ago> throwing more cards on a house of cards. Nice metaphor! Huge bubbles usually get a historical name like "Tulip Craze" or "Dot Com Crash" and when this bubble bursts "House of Cards" is a good candidate.
- jama211 1y agoI just hope it works out just like the dot com crash in the long run - which is that the internet kept going and bringing real value it just needed a big market reset when it popped.
- neilv 1y agoOh, I see now: house of cards (usual meaning) + throwing more cards on (like throwing money on the fire, and also how you destabilize house of card) + GPU cards in this case (even though they're not necessarily cards). I like it.
- andai 1y agoI think you have just described the global economy.
- kelvinjps 1y agoThe're just buying and investing from each other?
- jama211 1y agoPerhaps I should short openAI… would you try it?
- jama211 1y agoI also ask this as a rationalist technique, the moment you ask “what outcome would you actually put money on” people suddenly get far more realistic about how confident they actually feel. You get a whole lot less “oh they’re DEFINITELY gonna fail/succeed!” type hyperbole when money is on the line.
- crowcroft 1y agoIt seems similar to how GE under Jack Welch would use their rock solid financials to take on low cost debt that they could lend out to suppliers who needed finance to purchase their products. The biggest difference here though is that most of these moves seem to to involve direct investment and the movement of equity, not debt. I think this is an important distinction, because if things take a downturn debt is highly explosive (see GE during the GFC) whereas equity is not. Not to say anyone wants to take a huge markdown on their equity, and there are real costs associated with designing, building, and powering GPUs which needs to be paid for, but Nvidia is also generating real revenue which likely covers that, I don't think they're funding much through debt? Tech tends to be very high margin so there's a lot of room to play if you're willing to just reduce your revenue (as opposed to taking on debt) in the short term. Of course this means asset prices in the industry are going to get really tightly coupled, so if one starts to deflate it's likely that the market is going to wipe out a lot of value quickly and while there isn't an obvious debt bomb that will explode, I'm sure there's a landmine lying around somewhere...
- paganel 1y ago> debt is highly explosive (see GE during the GFC) whereas equity is not. Not as explosive as debt but I'd venture to say that nowadays equity is a lot more "inflamable" compared to 2008-2010, as in a lot more debt-like (which I think partly explains the current equity bubble in the US). As in, there are lots and lots of investment funds/pension funds/other such like financial entities which are very heavily tied to the "performance" of equity, and I'm talking about trillions (at this point) of dollars, and if that equity were to get a, let's say, 20 or 30% hair-cut in a matter of two-three months (at most), then we'll for sure be back in October 2008 mode.
- littlestymaar 1y ago> As in, there are lots and lots of investment funds/pension funds/other such like financial entities which are very heavily tied to the "performance" of equity, and I'm talking about trillions (at this point) of dollars, and if that equity were to get a, let's say, 20 or 30% hair-cut in a matter of two-three months (at most), then we'll for sure be back in October 2008 mode. Just curious, can you detail how it would fail exactly?
- eitally 1y agoI'm not saying you're wrong, but with Nvidia pulling back from DGX Cloud, it makes sense that they'd continue to invest in their strategic partners (whether it's software companies like OpenAI or infrastructure vendors like Coreweave).
- belter 1y agoSame as they are doing with CoreWeave. In a sane world the SEC would do something but we are past that. What about Boeing opening an airline company and selling airplanes to itself?
- lacy_tinpot 1y agoThis is more like reinvesting into the business as it's growing. It's a positive sum loop. Nvidia makes money by selling to OpenAI. OpenAI makes money by selling a service to users that uses Nvidia. So Nvidia invests in the build out and expansion of the infrastructure that will use Nvidia. This is a classic positive sum loop. It's not that different than a company reinvesting revenue in growing the company.
- binarymax 1y agoBut is OpenAI recouping this? I remember seeing reports a year ago that it was in the realm of $700M/mo in inference costs for them - are they earning that now? Of course the strategy of taking a loss and reinvesting - but I don't see how OpenAI is making enough money to pay for all this, now or in the future.
- sssilver 1y agoHow would you "see" that, given that OpenAI isn't public?
- lacy_tinpot 1y agoIt hasn't monetized any of its services. There are currently no ads. And it's not selling user data, well not yet. That's literally hundreds of billions worth of revenue. Just look at the options OpenAI has to generate revenue beyond subscriptions.
- cyanydeez 1y agoAmells like yahoo driven 2000 bubble. Definitely short every ancillsry business involved
- javiramos 1y ago"...man this is gonna crash hard when reality sets in." Given the amount of money invested and the expectations, the crash will be of cataclysmic proportions