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Some refer to it as "circular financing". It's "seller financing" but to a degree we've never seen before in an industry (which create these "circular" effects

Some refer to it as "circular financing". It's "seller financing" but to a degree we've never seen before in an industry (which create these "circular" effects). There's a good HN thread from 2-days ago on this subject (200+ comments). https://news.ycombinator.com/item?id=45473033 https://news.ycombinator.com/item?id=45473033

bee_rider 1y ago
What a mess. When they have to write about how “circular financing” became highly regulated in the future, I hope they know that the problem was not confusing in the big picture. Maybe I can get quoted in a sidebar: “Hey Econ students, we normal people could see that the AI market was extremely gamed. We can see the investment feedback loop. It is just that the organizations continuing it have control over so much money, they don’t have to stop and ask society in general for permission to continue. Really this is a symptom of the wealth inequality crisis that they covered chapter…”
- tjwebbnorfolk 1y ago
  This method of financing is not novel. But anytime you see an unnecessarily complex deal like this, one should think very carefully about why they didn't opt for a simpler method, e.g. simply selling stock in the open market. The reasoning behind such a deal are usually not a good sign for the underlying health of the companies involved.
  - famouswaffles 1y ago
    I'm assuming this is what you mean by 'simply selling stock in the open market' so correct me if I'm wrong but Why would Open AI go public when they can raise so much private money they're valued at 500B ? It certainly wouldn't be for fear of a lack of investment. AMD is up 30% from this announcement alone.
    - graeme 1y ago
      Openai can't go public at present. They have an irregular non profit structure. They've been negotiating with Microsoft but can't convert out of their current structure without getting a new deal from Microsoft accepting the conversion.
DebtDeflation 1y ago
Oh, we saw it before. 1998-2000. Cisco, Sun, et al, "investing" in the dotcoms so those dotcoms could turn around and use the funds to buy servers and routers from them.
- hmm37 1y ago
  It's the opposite here. It's as if the dotcom is investing into Cisco and Sun, so that it can buy servers and routers from them.
  - DebtDeflation 1y ago
    Not really. This is AMD investing in OpenAI (albeit in an unusual way, with stock options) not the reverse. Same as the Nvidia deal. Same as hyperscaler investment in OpenAI and Anthropic. The people selling stuff to the AI Labs are the same ones funding them.
    - didibus 1y ago
      I can't figure who is actually investing in who? OpenAI may own 10% of AMD, and that seems like OpenAI investing in AMD in exchange for buying 6GW of GPUs and 160million in stock.
      - DebtDeflation 1y ago
        OpenAI isn't giving AMD money to get AMD stock. AMD is giving OpenAI its stock (in the form of a call option with a $0.01 strike).
        didibus 1y ago
        I understood it as, OpenAI is giving AMD money, by buying 6GW of GPUs from them. But if it results in their stock reaching 600$, then AMD will give back the money that OpenAI spent on GPUs as 10% stock options into AMD. Which sounds like, no one is really investing in each other, they're both like exchanging money back and forth, where both hope to gain some extra money by propping up the AMD stock with the announcement, hoping it helps make AMD more competitive on the GPU landscape. Did I get it right?
lvl155 1y ago
Nvidia owns a piece of OAI, and now Nvidia would own a piece of AMD. I am just waiting for Samsung type of circular ownership structures here in the US.
deleted 1y ago
[deleted]
jpadkins 1y ago
The real, sustained value creation for AMD is if their GPUs can be competitive with Nvidia for inference or training. The market is currently betting that AMD will get that "spillover" effect from working with OpenAI to get their chips + software in a state that openAI can use at scale. So day 1 valuation is mostly hype, but that hype may translate into real value later.

bee_rider 1y ago

What a mess. When they have to write about how “circular financing” became highly regulated in the future, I hope they know that the problem was not confusing in the big picture. Maybe I can get quoted in a sidebar: “Hey Econ students, we normal people could see that the AI market was extremely gamed. We can see the investment feedback loop. It is just that the organizations continuing it have control over so much money, they don’t have to stop and ask society in general for permission to continue. Really this is a symptom of the wealth inequality crisis that they covered chapter…”

tjwebbnorfolk 1y ago
This method of financing is not novel. But anytime you see an unnecessarily complex deal like this, one should think very carefully about why they didn't opt for a simpler method, e.g. simply selling stock in the open market. The reasoning behind such a deal are usually not a good sign for the underlying health of the companies involved.
- famouswaffles 1y ago
  I'm assuming this is what you mean by 'simply selling stock in the open market' so correct me if I'm wrong but Why would Open AI go public when they can raise so much private money they're valued at 500B ? It certainly wouldn't be for fear of a lack of investment. AMD is up 30% from this announcement alone.
  - graeme 1y ago
    Openai can't go public at present. They have an irregular non profit structure. They've been negotiating with Microsoft but can't convert out of their current structure without getting a new deal from Microsoft accepting the conversion.

DebtDeflation 1y ago

Oh, we saw it before. 1998-2000. Cisco, Sun, et al, "investing" in the dotcoms so those dotcoms could turn around and use the funds to buy servers and routers from them.

hmm37 1y ago
It's the opposite here. It's as if the dotcom is investing into Cisco and Sun, so that it can buy servers and routers from them.
- DebtDeflation 1y ago
  Not really. This is AMD investing in OpenAI (albeit in an unusual way, with stock options) not the reverse. Same as the Nvidia deal. Same as hyperscaler investment in OpenAI and Anthropic. The people selling stuff to the AI Labs are the same ones funding them.
  - didibus 1y ago
    I can't figure who is actually investing in who? OpenAI may own 10% of AMD, and that seems like OpenAI investing in AMD in exchange for buying 6GW of GPUs and 160million in stock.
    - DebtDeflation 1y ago
      OpenAI isn't giving AMD money to get AMD stock. AMD is giving OpenAI its stock (in the form of a call option with a $0.01 strike).
      - didibus 1y ago
        I understood it as, OpenAI is giving AMD money, by buying 6GW of GPUs from them. But if it results in their stock reaching 600$, then AMD will give back the money that OpenAI spent on GPUs as 10% stock options into AMD. Which sounds like, no one is really investing in each other, they're both like exchanging money back and forth, where both hope to gain some extra money by propping up the AMD stock with the announcement, hoping it helps make AMD more competitive on the GPU landscape. Did I get it right?

lvl155 1y ago

Nvidia owns a piece of OAI, and now Nvidia would own a piece of AMD. I am just waiting for Samsung type of circular ownership structures here in the US.

deleted 1y ago

[deleted]

jpadkins 1y ago

The real, sustained value creation for AMD is if their GPUs can be competitive with Nvidia for inference or training. The market is currently betting that AMD will get that "spillover" effect from working with OpenAI to get their chips + software in a state that openAI can use at scale. So day 1 valuation is mostly hype, but that hype may translate into real value later.