5 ms·

> On the one hand you can look at these companies investing and take it as a signal that there is something there (in OpenAI) that's worth investing in. On the

> On the one hand you can look at these companies investing and take it as a signal that there is something there (in OpenAI) that's worth investing in. On the other hand all these companies that are investing are basically getting that investment back through spending commitments and such and are just using OpenAI as a proxy for what is essentially buying more revenue for themselves. I don't understand how this is some kind of cheat code. Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back".

rafaelmn 8mo ago
In exchange for 100$ of your stock AND making your revenue numbers look insane for the next cycle ? Also Nvidia margins are waaay higher than 20%
Alex3917 8mo ago
For both Amazon and Nvidia, their marginal costs are probably much lower than their fixed costs.
SecretDreams 8mo ago
> I don't understand how this is some kind of cheat code. Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back". What if the product only costs you $20 to produce?
- a_victorp 8mo ago
  Or if the stock is not actually worth $100
hirako2000 8mo ago
That's like giving them* $20. And inflate your revenue by $80. Laws on competition make this kind of arrangements illegal, so you would have to exerce influence and have the invested in company pretends you happen to have been picked among competitors. In any case the SEC will be focused on whether the filings aren't made up to fraud investors, so they could reject the IPO, of the invested in company. Your own entity also is at risk. We all know MS gets away with it, they have good legal goons who find way to make all of it appears fair with regards to the law.
- GolfPopper 8mo ago
  >they have good legal goons who find way to make all of it appears fair with regards to the law I thought it was more that the legal goons delay the final judgement until Microsoft can eventually find someone they can (technically legally) bribe to drop the case?
  - hirako2000 8mo ago
    Swallowing a few millions dollars fine will do. The DOJ needs to fund the whole department. By then MS will have moved onto other things, rinse and repeat.
bradfa 8mo ago
I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No? NVIDIA gross margins lately are like 75%, so it's more like you give me $100 to buy something from me that cost me $25 to produce, hence I end up with $100 worth of stock in your company and it only cost me $25.
- Sleaker 8mo ago
  Aaaannd get to claim the 100 as revenue to show investors that the company is performing better than if I had not made the deal, which also means that demand for the product stays inflated which also means I can keep my margins higher by not needing to discount my product.
  - rvnx 8mo ago
    Urgently need an IPO so losers can chip in. If the sandcastle plummets before, funds and other AI companies lose a lot, so better bet again and again, even if this is nonsensical.
- ben_w 8mo ago
  > I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No? Sure, but how's that a cheat code? If you normally sell something for $100 that costs $80 to make, and then use that $100 revenue to buy $100 of stock, this is an identical outcome for you.
  - danielheath 8mo ago
    They wouldn’t have bought $100 worth of product if the deal weren’t offered, because they didn’t have $100 to spend.
    - ben_w 8mo ago
_fat_santa 8mo ago
How I see it is the companies want to jack their revenue and in turn jack the price of their stock and please shareholders. Those are the two main goals which this accomplishes, regardless of the underlying fundamentals.
skydhash 8mo ago
I'm not a finance expert, but it may be because investment and purchase are are taxed differently (I don't know). You gave $100 away as investments, got $100 back as revenue. Meanwhile you establish that your product are worth $100 (while costing $80) and you have $100 worth of shares. Without considering side effects, you gave away $80 worth of product for $100 (supposed) worth of shares. But shares are subject to side effects and those side effects can be quite nice (making the news, establishing price,...). The issue is that there's no organic force behind those changes and it makes everything hollow. You could create a market inside a deserted area and make it appear like a metropolis.
coliveira 8mo ago
The reason this doesn't make sense is that this is the math of monopoly creation! The government should be making sure companies don't go around throwing money at circular deals that will make them and their friends a fortune while cornering the market, but it seems that capitalism rules don't exist anymore in the US.
overfeed 8mo ago
> Isn't that basically the same as me giving you $80? In your accounting, you can claim that you have an investment worth $100 and book $100 worth of revenue. You're juicing your sales numbers to impress shareholders - presumably, without your $100, the investee wouldn't have bought $100 worth of your product. The last thing your shareholders want to see are your sales numbers stop growing, or heaven forbid, start shrinking. Nvidia is not the first company to "buy" sales of its own product via simple or convoluted incentive schemes. The scheme will work for a while until it doesn't.
tsimionescu 8mo ago
The problem is here: > Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? Why limit myself to $100 for a product that costs $80? I could just as well give you $1 000 000 to buy this same product from me. That way, I have a $1 000 000 share of your company, and I have $1 000 000 in revenue, and it only cost me $80. This distorts the market for the product we're trading, and distorts the share price for both my company and yours.
ibeckermayer 8mo ago
> Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back". It's a good question, what I think you're missing is that if the market is valuing me (NVIDIA) at 25x revenue then it's more like I traded you (OpenAI) a GPU it cost me $80 to make for $100 worth of OpenAI stock, and I got a bonus $2500 in market cap of my own stock (which existing shareholders like). IOW for every incremental "$100" in revenue (circular or otherwise), existing shareholders get paid "$2500" in equity (NVIDIA appreciation + OpenAI shares). This "works" for NVIDIA and its shareholders as long as they/the market keeps thinking $100 of OpenAI stock is a good price for a GPU. If OpenAI tangibly fails to deliver on this valuation then NVIDIA may wind up in the red on these deals. Caveat: it's a bit more complicated than that as OpenAI doesn't typically buy/operate GPUs directly afaict, rather they team up with the big cloud providers like AMZN (also part of the deal). But it's an useful way to wrap your head around the economics, I think (open to correction, not a domain of professional expertise). I don't see anything _inherently_ unethical about this as some comments seem to imply. It's definitely riskier than accepting cash, in which case you're free not to play, but it's a calculated risk based on future expectations of growth by OpenAI. Granted there are some sketchy incentives qua existing shareholders that could materialize in pump and dump dynamics.

rafaelmn 8mo ago

In exchange for 100$ of your stock AND making your revenue numbers look insane for the next cycle ? Also Nvidia margins are waaay higher than 20%

Alex3917 8mo ago

For both Amazon and Nvidia, their marginal costs are probably much lower than their fixed costs.

SecretDreams 8mo ago

> I don't understand how this is some kind of cheat code. Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back". What if the product only costs you $20 to produce?

a_victorp 8mo ago
Or if the stock is not actually worth $100

hirako2000 8mo ago

That's like giving them* $20. And inflate your revenue by $80. Laws on competition make this kind of arrangements illegal, so you would have to exerce influence and have the invested in company pretends you happen to have been picked among competitors. In any case the SEC will be focused on whether the filings aren't made up to fraud investors, so they could reject the IPO, of the invested in company. Your own entity also is at risk. We all know MS gets away with it, they have good legal goons who find way to make all of it appears fair with regards to the law.

GolfPopper 8mo ago
>they have good legal goons who find way to make all of it appears fair with regards to the law I thought it was more that the legal goons delay the final judgement until Microsoft can eventually find someone they can (technically legally) bribe to drop the case?
- hirako2000 8mo ago
  Swallowing a few millions dollars fine will do. The DOJ needs to fund the whole department. By then MS will have moved onto other things, rinse and repeat.

bradfa 8mo ago

I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No? NVIDIA gross margins lately are like 75%, so it's more like you give me $100 to buy something from me that cost me $25 to produce, hence I end up with $100 worth of stock in your company and it only cost me $25.

Sleaker 8mo ago
Aaaannd get to claim the 100 as revenue to show investors that the company is performing better than if I had not made the deal, which also means that demand for the product stays inflated which also means I can keep my margins higher by not needing to discount my product.
- rvnx 8mo ago
  Urgently need an IPO so losers can chip in. If the sandcastle plummets before, funds and other AI companies lose a lot, so better bet again and again, even if this is nonsensical.
ben_w 8mo ago
> I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No? Sure, but how's that a cheat code? If you normally sell something for $100 that costs $80 to make, and then use that $100 revenue to buy $100 of stock, this is an identical outcome for you.
- danielheath 8mo ago
  They wouldn’t have bought $100 worth of product if the deal weren’t offered, because they didn’t have $100 to spend.
  - ben_w 8mo ago

_fat_santa 8mo ago

How I see it is the companies want to jack their revenue and in turn jack the price of their stock and please shareholders. Those are the two main goals which this accomplishes, regardless of the underlying fundamentals.

skydhash 8mo ago

I'm not a finance expert, but it may be because investment and purchase are are taxed differently (I don't know). You gave $100 away as investments, got $100 back as revenue. Meanwhile you establish that your product are worth $100 (while costing $80) and you have $100 worth of shares. Without considering side effects, you gave away $80 worth of product for $100 (supposed) worth of shares. But shares are subject to side effects and those side effects can be quite nice (making the news, establishing price,...). The issue is that there's no organic force behind those changes and it makes everything hollow. You could create a market inside a deserted area and make it appear like a metropolis.

coliveira 8mo ago

The reason this doesn't make sense is that this is the math of monopoly creation! The government should be making sure companies don't go around throwing money at circular deals that will make them and their friends a fortune while cornering the market, but it seems that capitalism rules don't exist anymore in the US.

overfeed 8mo ago

> Isn't that basically the same as me giving you $80? In your accounting, you can claim that you have an investment worth $100 and book $100 worth of revenue. You're juicing your sales numbers to impress shareholders - presumably, without your $100, the investee wouldn't have bought $100 worth of your product. The last thing your shareholders want to see are your sales numbers stop growing, or heaven forbid, start shrinking. Nvidia is not the first company to "buy" sales of its own product via simple or convoluted incentive schemes. The scheme will work for a while until it doesn't.

tsimionescu 8mo ago

The problem is here: > Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? Why limit myself to $100 for a product that costs $80? I could just as well give you $1 000 000 to buy this same product from me. That way, I have a $1 000 000 share of your company, and I have $1 000 000 in revenue, and it only cost me $80. This distorts the market for the product we're trading, and distorts the share price for both my company and yours.

ibeckermayer 8mo ago

> Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back". It's a good question, what I think you're missing is that if the market is valuing me (NVIDIA) at 25x revenue then it's more like I traded you (OpenAI) a GPU it cost me $80 to make for $100 worth of OpenAI stock, and I got a bonus $2500 in market cap of my own stock (which existing shareholders like). IOW for every incremental "$100" in revenue (circular or otherwise), existing shareholders get paid "$2500" in equity (NVIDIA appreciation + OpenAI shares). This "works" for NVIDIA and its shareholders as long as they/the market keeps thinking $100 of OpenAI stock is a good price for a GPU. If OpenAI tangibly fails to deliver on this valuation then NVIDIA may wind up in the red on these deals. Caveat: it's a bit more complicated than that as OpenAI doesn't typically buy/operate GPUs directly afaict, rather they team up with the big cloud providers like AMZN (also part of the deal). But it's an useful way to wrap your head around the economics, I think (open to correction, not a domain of professional expertise). I don't see anything _inherently_ unethical about this as some comments seem to imply. It's definitely riskier than accepting cash, in which case you're free not to play, but it's a calculated risk based on future expectations of growth by OpenAI. Granted there are some sketchy incentives qua existing shareholders that could materialize in pump and dump dynamics.