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These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their s

These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their services and they'd spend it again on advertising. The end result is immense revenues without profits.

CPLX 1y ago
Exactly, everything old is new again. This was one of the drivers of the original dot-com bubble.
TZubiri 1y ago
I'd gander a guess that there's nothing tech specific here and that fraudulent schemes are well defined for the SEC and commercial courts to take action if something is not kosher
- datadrivenangel 1y ago
  It's usually not actually fraud. It's the amazon reinvesting back into growth, except the unit economics don't work if everyone cashes out at the same time, and if anyone starts cashing out the growth stops and everyone cashes out before it's too late.
forgetfulness 1y ago
Circular investments were also a compounding factor in the Japanese asset price bubble. The practice was known as “zaitech” > zaitech - financial engineering > In 1984, Japan’s Ministry of Finance permitted companies to operate special accounts for their shareholdings, known as tokkin accounts. These accounts allowed companies to trade securities without paying capital gains tax on their profits. > At the same time, Japanese companies were allowed to access the Eurobond market in London. Companies issued warrant bonds, a combination of traditional corporate bonds with an option (the “warrant") to purchase shares in the company at a specified price before expiry. Since Japanese shares were rising, the warrants became more valuable, allowing companies to issue bonds with low-interest payments. > The companies, in turn, placed the money they raised into their tokkin accounts that invested in the stock market. Note the circularity: companies raised money by selling warrants that relied on increasing stock prices, which was used to buy more shares, thus increasing their gains from investing in the stock market. https://www.capitalmind.in/insights/lost-decades-japan-1980s-asset-price-bubble https://www.capitalmind.in/insights/lost-decades-japan-1980s...
- WOTERMEON 1y ago
  And I guess no one of the people who were doing that paid but the community paid the price for this scam ?
zemvpferreira 1y ago
There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go another way.
- Arkhaine_kupo 1y ago
  > they’re using their equity to buy compute that is critical to improving their core technology But we know that growth in the models is not exponential, its much closer to logarithmic. So they spend =equity to get >results. The ad spend was a merry go round, this is a flywheel where the turning grinds its gears until its a smooth burr. The math of the rising stock prices only begins to make sense if there is a possible breakthrough that changes the flywheel into a rocket, but as it stands its running a lemonade stand where you reinvest profits into lemons that give out less juice
  - J_McQuade 1y ago
    There is something about an argument made almost entirely out of metaphors that amuses me to the point of not being able to take it seriously, even if I actually agree with it.
    - powerhouse007 1y ago
      As much as I dislike metaphors, this sounded reasonable to me. Just don't go poking holes in the metaphor instead of the real argument.
      - gilleain 1y ago
        Indeed, poking holes in the metaphor is like putting a pin in a balloon, rather than knocking it out of the park by addressing the real argument.
  - 1y ago
orochimaaru 1y ago
Gita Gopinath (imf’s economist) sounded the alarm on the scale of this - https://www.afr.com/wealth/investing/the-crash-that-could-torch-us35trn-of-wealth-20251016-p5n31w https://www.afr.com/wealth/investing/the-crash-that-could-to...
- whimsicalism 1y ago
  Stopped clock… 2020: https://www.youtube.com/watch?v=rpiZ0DkHeGE https://www.youtube.com/watch?v=rpiZ0DkHeGE 2019: https://www.cadtm.org/spip.php?page=imprimer&id_article=17322 https://www.cadtm.org/spip.php?page=imprimer&id_article=1732...
  - mac-attack 1y ago
    Reminds me of Nassim Taleb who got one call right and then his career became consistently incorrect bubble predictions
- bobxmax 1y ago
  [dead]
boringg 1y ago
The original "Tech" boom was an infrastructure boom by the telecoms funded by leveraged debt. It was an overbuild mismatch with the market timing. If you brought forward the timeline to when that infrastructure was used (late 2000s) you probably would never have had the crash. This boom is a data center boom with AI being the software layer/driver. This one potentially has a lot longer to run even though everyone is freaking out now. If you believe the AI is rebuilding compute then this changes our compute paradigm in the future. As well as long as we don't get an over leveraged build out without revenue coming in the door. I think we are seeing a lot of revenue come in for certain applications. The companies that are all smoke and mirrors built on chatGPT with little defensibility are probably the same as the ones you are referring to in the current era. Or the AI tooling companies. To be clear circular deal flow is not a good look. I can see the both sides of bull and bear at this moment.
- cman1444 1y ago
  One interesting aspect of this is that, with the exception of OpenAI, all of the companies leading this boom generate massive amounts of income from other arms of their buinesses. I think this is one reason for the potentially longer run, since they can subsidize AI CapEx with these cash flows for quite a while.

CPLX 1y ago

Exactly, everything old is new again. This was one of the drivers of the original dot-com bubble.

TZubiri 1y ago

I'd gander a guess that there's nothing tech specific here and that fraudulent schemes are well defined for the SEC and commercial courts to take action if something is not kosher

datadrivenangel 1y ago
It's usually not actually fraud. It's the amazon reinvesting back into growth, except the unit economics don't work if everyone cashes out at the same time, and if anyone starts cashing out the growth stops and everyone cashes out before it's too late.

forgetfulness 1y ago

Circular investments were also a compounding factor in the Japanese asset price bubble. The practice was known as “zaitech” > zaitech - financial engineering > In 1984, Japan’s Ministry of Finance permitted companies to operate special accounts for their shareholdings, known as tokkin accounts. These accounts allowed companies to trade securities without paying capital gains tax on their profits. > At the same time, Japanese companies were allowed to access the Eurobond market in London. Companies issued warrant bonds, a combination of traditional corporate bonds with an option (the “warrant") to purchase shares in the company at a specified price before expiry. Since Japanese shares were rising, the warrants became more valuable, allowing companies to issue bonds with low-interest payments. > The companies, in turn, placed the money they raised into their tokkin accounts that invested in the stock market. Note the circularity: companies raised money by selling warrants that relied on increasing stock prices, which was used to buy more shares, thus increasing their gains from investing in the stock market. https://www.capitalmind.in/insights/lost-decades-japan-1980s-asset-price-bubble https://www.capitalmind.in/insights/lost-decades-japan-1980s...

WOTERMEON 1y ago
And I guess no one of the people who were doing that paid but the community paid the price for this scam ?

zemvpferreira 1y ago

There’s one key difference in my opinion: pre-.com deals were buying revenue with equity and nothing else. It was growth for growth’s sake. All that scale delivered mostly nothing. OpenAI applies the same strategy, but they’re using their equity to buy compute that is critical to improving their core technology. It’s circular, but more like a flywheel and less like a merry-go-round. I have some faith it could go another way.

Arkhaine_kupo 1y ago
> they’re using their equity to buy compute that is critical to improving their core technology But we know that growth in the models is not exponential, its much closer to logarithmic. So they spend =equity to get >results. The ad spend was a merry go round, this is a flywheel where the turning grinds its gears until its a smooth burr. The math of the rising stock prices only begins to make sense if there is a possible breakthrough that changes the flywheel into a rocket, but as it stands its running a lemonade stand where you reinvest profits into lemons that give out less juice
- J_McQuade 1y ago
  There is something about an argument made almost entirely out of metaphors that amuses me to the point of not being able to take it seriously, even if I actually agree with it.
  - powerhouse007 1y ago
    As much as I dislike metaphors, this sounded reasonable to me. Just don't go poking holes in the metaphor instead of the real argument.
    - gilleain 1y ago
      Indeed, poking holes in the metaphor is like putting a pin in a balloon, rather than knocking it out of the park by addressing the real argument.
- 1y ago

orochimaaru 1y ago

Gita Gopinath (imf’s economist) sounded the alarm on the scale of this - https://www.afr.com/wealth/investing/the-crash-that-could-torch-us35trn-of-wealth-20251016-p5n31w https://www.afr.com/wealth/investing/the-crash-that-could-to...

whimsicalism 1y ago
Stopped clock… 2020: https://www.youtube.com/watch?v=rpiZ0DkHeGE https://www.youtube.com/watch?v=rpiZ0DkHeGE 2019: https://www.cadtm.org/spip.php?page=imprimer&id_article=17322 https://www.cadtm.org/spip.php?page=imprimer&id_article=1732...
- mac-attack 1y ago
  Reminds me of Nassim Taleb who got one call right and then his career became consistently incorrect bubble predictions
bobxmax 1y ago
[dead]

boringg 1y ago

The original "Tech" boom was an infrastructure boom by the telecoms funded by leveraged debt. It was an overbuild mismatch with the market timing. If you brought forward the timeline to when that infrastructure was used (late 2000s) you probably would never have had the crash. This boom is a data center boom with AI being the software layer/driver. This one potentially has a lot longer to run even though everyone is freaking out now. If you believe the AI is rebuilding compute then this changes our compute paradigm in the future. As well as long as we don't get an over leveraged build out without revenue coming in the door. I think we are seeing a lot of revenue come in for certain applications. The companies that are all smoke and mirrors built on chatGPT with little defensibility are probably the same as the ones you are referring to in the current era. Or the AI tooling companies. To be clear circular deal flow is not a good look. I can see the both sides of bull and bear at this moment.

cman1444 1y ago
One interesting aspect of this is that, with the exception of OpenAI, all of the companies leading this boom generate massive amounts of income from other arms of their buinesses. I think this is one reason for the potentially longer run, since they can subsidize AI CapEx with these cash flows for quite a while.