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God that sounds so crazy. Its giving me "sell our municipal water to Private Equity to buy a park, imagine the tax revenue!" vibes except its just diluting the

by jonway 11mo ago

God that sounds so crazy. Its giving me "sell our municipal water to Private Equity to buy a park, imagine the tax revenue!" vibes except its just diluting the shares. It feels like economics in the US is turning into FanDuel mobile gambling. Can we pass a law to disincentivize this garbage and make them start paying dividends again?

tarsinge 11mo ago
Isn’t the problem rooted in stock buybacks? Making it illegal could bring dividends and realign incentives.
- jonway 11mo ago
  Please! Has Amazon ever paid out a dividend???
scotty79 11mo ago
It's more like "I'm making so much bread and have so much money already. You are making clothes but don't have enough money to buy bread from me to feed your workers so you can't grow. I think our village population will soon explode and there's going to be huge need for your clothing. So how about I give you money to buy bread from me in exchange for partial ownership of your business and its future profits?" It's a perfectly reasonable thing a rich miller could do for a poor but growing village businesses.
- jonway 11mo ago
  No ... its more like "I'm making so many GPUs and have so much money already. You don't have GPUs so how about I give you GPUs in exchange for partial ownership in your business so you don't have to put this capex on your books that affect your ability to raise other investments, trigger certain disclosures, or make your finances look underwater since the assets will likely bolster your own valuation." Feels gamble-y when the shovel maker is playing weird VC for the gold prospectors like this, but I get the appeal since Nvidia stands to lose everything if this stuff tanks anyhow and it further entrenches Nvidia's own position all while keeping the hype train steaming by moving units.
  - scotty79 11mo ago
    That is an accurate description. It's a gamble that Nvidia takes. Just making chips would be a normal bet. Making chips and getting paid with equity in its customers is like a leveraged bet. If the AI succeeds Nvidia will own significant vertical portion of all of it. If it fails, Nvidia will shrivel. But by deciding to take that risk Nividia tips the scale on its bet making AI more likely to succeed (or just not to fail because of chip and capital starvation).
    - jonway 11mo ago
      Do you think its smart to structure commercial ventures this way? In a different space, is it a great idea for a farmer to sell %10 of their venture to John Deere for the tractor?
      - scotty79 11mo ago
        If otherwise farmer would not be able to afford the tractor and starve instead I'd say it's pretty reasonable. You can fund your education with part of your future job earnings. In a perfect world companies should just do their business and nothing else. Companies shouldn't be able to own other companies because that's gambling on their value. They shouldn't be allowed to do stock buybacks because that's gambling on their own value (and a kind of insider trading). In our world however companies are free to gamble on the side as long as their owners don't mind. Whether what Nvidia does is the best or the worst idea, only time will tell.
        jonway 11mo ago
        On the plus side, you can just declare bankruptcy and fold instead of becoming a share cropper. Heres the thing, these assets deprecate, while the stock doesn't. I see a big asymmetry in deals like this, and I do not like it. When you start a business and become indispensable to your customers, you're doing well. If a company fails, it is maybe unavoidable. In situations like this, the risk increases because now these companies are interdependent not only as suppliers and providers, but in their intrinsic value and likely decision making insofar as shares can be voting shares. In any case, the C Suite and board sure know who owns %10 of the shares. >In our world however companies are free to gamble on the side as long as their owners don't mind. This constitutes an enormous systemic risk. We are treading in dangerous waters. The owners are not the only stakeholders in a company.

by jonway 11mo ago

tarsinge 11mo ago

Isn’t the problem rooted in stock buybacks? Making it illegal could bring dividends and realign incentives.

jonway 11mo ago
Please! Has Amazon ever paid out a dividend???

scotty79 11mo ago

It's more like "I'm making so much bread and have so much money already. You are making clothes but don't have enough money to buy bread from me to feed your workers so you can't grow. I think our village population will soon explode and there's going to be huge need for your clothing. So how about I give you money to buy bread from me in exchange for partial ownership of your business and its future profits?" It's a perfectly reasonable thing a rich miller could do for a poor but growing village businesses.

jonway 11mo ago
No ... its more like "I'm making so many GPUs and have so much money already. You don't have GPUs so how about I give you GPUs in exchange for partial ownership in your business so you don't have to put this capex on your books that affect your ability to raise other investments, trigger certain disclosures, or make your finances look underwater since the assets will likely bolster your own valuation." Feels gamble-y when the shovel maker is playing weird VC for the gold prospectors like this, but I get the appeal since Nvidia stands to lose everything if this stuff tanks anyhow and it further entrenches Nvidia's own position all while keeping the hype train steaming by moving units.
- scotty79 11mo ago
  That is an accurate description. It's a gamble that Nvidia takes. Just making chips would be a normal bet. Making chips and getting paid with equity in its customers is like a leveraged bet. If the AI succeeds Nvidia will own significant vertical portion of all of it. If it fails, Nvidia will shrivel. But by deciding to take that risk Nividia tips the scale on its bet making AI more likely to succeed (or just not to fail because of chip and capital starvation).
  - jonway 11mo ago
    Do you think its smart to structure commercial ventures this way? In a different space, is it a great idea for a farmer to sell %10 of their venture to John Deere for the tractor?
    - scotty79 11mo ago
      If otherwise farmer would not be able to afford the tractor and starve instead I'd say it's pretty reasonable. You can fund your education with part of your future job earnings. In a perfect world companies should just do their business and nothing else. Companies shouldn't be able to own other companies because that's gambling on their value. They shouldn't be allowed to do stock buybacks because that's gambling on their own value (and a kind of insider trading). In our world however companies are free to gamble on the side as long as their owners don't mind. Whether what Nvidia does is the best or the worst idea, only time will tell.
      - jonway 11mo ago
        On the plus side, you can just declare bankruptcy and fold instead of becoming a share cropper. Heres the thing, these assets deprecate, while the stock doesn't. I see a big asymmetry in deals like this, and I do not like it. When you start a business and become indispensable to your customers, you're doing well. If a company fails, it is maybe unavoidable. In situations like this, the risk increases because now these companies are interdependent not only as suppliers and providers, but in their intrinsic value and likely decision making insofar as shares can be voting shares. In any case, the C Suite and board sure know who owns %10 of the shares. >In our world however companies are free to gamble on the side as long as their owners don't mind. This constitutes an enormous systemic risk. We are treading in dangerous waters. The owners are not the only stakeholders in a company.