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> And Google is a major shareholder in SpaceX, so they certainly have incentive to juice the valuation of the IPO. Google own 5-6% of the shares of SpaceX. Spa

by TSiege 4mo ago

> And Google is a major shareholder in SpaceX, so they certainly have incentive to juice the valuation of the IPO. Google own 5-6% of the shares of SpaceX. SpaceX is seeking a valuation of $1.77T which means Google's shares would be worth $88.5B-$106.2B. I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?

AznHisoka 4mo ago
Someone gets bailed out and the cycle starts again. Isnt this how it works?
- downrightmike 4mo ago
  Hyperinflation to make the needed bailout money
  - staplers 4mo ago
    That's done quietly behind the scenes so leaders can blame something else for inflation. See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.
    - drivebyhooting 4mo ago
      I don’t understand how to read those charts.
      - smallmancontrov 4mo ago
        Any time you see a price denominated in $, divide by that chart.
        stymaar 4mo ago
        The idea that inflation and the money supply are linked is one of the most dumb one in folk economics. Just look at these charts: they were declining when inflation was raging on in 2022-23 …
        smallmancontrov 4mo ago
        Lagged processes are one of the most fundamental concepts in economics. If merely recognizing the possibility that one could be at play here is throwing you for a loop, you need the simplified monetary model more than most.
        stymaar 4mo ago
        Where's the hell is the lag on these graphs though!? The money supply grows both before, and after the inflationary spike. (And the fact that it stops increasing when inflation is high is not surprising at all, by the way, high inflation make the central bank raise interest rates, which reduce credit, which is where money comes from).
        smallmancontrov 4mo ago
        The lag is where you were complaining it was.
        stymaar 4mo ago
        Do you know what “lag” means?
        ryan_j_naughton 4mo ago
        > "The idea that inflation and the money supply are linked is one of the most dumb one in folk economics" "folk economics" implies it is by untrained people. Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply, and one certainly cannot call Friedman a "folk economist" considering he won the Nobel prize in economics and was a professor at the University of Chicago. Note: I am not saying he is right or supporting his belief. I am merely stating that such a belief is not a "folk economics" belief. This belief is still very prevalent in the freshwater schools of economics. [1] As a personal anecdote, at Ronald Coase's 100th birthday party, I personally got Gary Becker and Richard Posner debating a very related topic (whether and by what degree the velocity of money of fluctuates and whether helicopter drops of cash would have been better during the early days of the money supply collapse in 2008/2009 than just giving money to the banks). In a room full of Nobel Prize winning economists in 2010, there was a very rigorous debate on the topic. [1] https://en.wikipedia.org/wiki/Saltwater_and_freshwater_economics https://en.wikipedia.org/wiki/Saltwater_and_freshwater_econo...
    - barrenko 4mo ago
      Banks not needing people's money is quite a bad thing. EDIT: M1 looks like a damn sigmoid.
    - gruez 4mo ago
      >See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/TOTBKCR https://fred.stlouisfed.org/series/TOTBKCR And you would have been massively wrong. People have been complaining about quantitative easing since post GFC, and if you took the figures at face value, those would imply inflation was nearly 100% between the end of GFC and before the pandemic. Whatever you thought about the post-pandemic inflation, the period between GFC and pre-pandemic definitely did not see the level of inflation implied by those figures.
      - disgruntledphd2 4mo ago
        I mean, it sortof did in assets, just not in the changes tracked by CPI.
        downrightmike 4mo ago
        That's because they take and modify what is tracked in the CPI at will
        gruez 4mo ago
        https://www.bls.gov/cpi/tables/relative-importance/home.htm https://www.bls.gov/cpi/tables/relative-importance/home.htm What do you find controversial, and would cause a material difference in the headline inflation rate?
        VirusNewbie 4mo ago
        Housing has a massive lag when it comes to CPI. CPI works by asking how much people pay for rent. If home prices raise 20% in one year (not at all unreasonable in various times in the last ten years), it takes a long time for that to be reflected as many people have their rents fixed, some people have rent control, some landlords will only raise rents on new tenants, etc.
        4mo ago
- timacles 4mo ago
  We are basically dealing with the fallout of the 2008 GFC bailout to this day. The fiat economic system is irreparably broken, and we are circling the drain. Another bailout is _probably_ inevitable. But the cycle sure as hell isnt resetting and we are speeding towards something... what it is is unclear though, and when is also unclear. The part people cant wrap around is the scale of it and the time it takes to go through the super cycle. Theoretically, it all started with the Dot com bubble, which indirectly cause the housing bubble, which caused the GFC. Which caused whatever happened in 2019, which caused QE in 2022 under the guise of COVID, which is causing whatever the hell is happening now. Capitalism has become uncorked, and money is irreversibly flowing to the top at an increasing rate. The logical next stage is that like 75% of the world's population is literally not even part of any economy. And that doesnt really make any sense
  - philipallstar 4mo ago
    Sigh, no. Money is not flowing; company valuation might be, but that's temporary and only works if the company keeps delivering insane amounts of value.
    - fc417fc802 4mo ago
      So the founders sell plenty of stock while the price is high and then when their valuation crashes sure they "lost" half their net worth but the other half is still there. I'm not saying that's what's happening, just making it clear that company valuation not being permanent is not a valid argument against money flowing to the top.
  - azan_ 4mo ago
    You've made lots of (wild) claims, but provided zero support for them. Also didn't bottom income quartile see the largest growth in last few years?
  - mannanj 4mo ago
    yeah I intuitively have felt something like this has been happening, too. And finding the evidence is such an immense task, and feels way out of my current energy level. When COVID was ongoing there was a term floating around I liked, "Psychosis" was it. The spell is like that of, denial? Terror & shock? Trauma might be better? Looking at trauma responses and how to detect it in humans is an interesting perspective to look at all this with. Personally, if I look at it from "people are afraid, traumatized, defending themselves" and use that to extrapolate how most people (the masses, the non-rich) would act and also the rich - that points me to why theres such a sudden hastening of action and pace of wealth up towards the top in the name of AI & war.
- shmel 4mo ago
  or, hear me out, we can try the Irish way? Just let them fail ffs
  - vitally3643 4mo ago
    Unfortunately, the entire US economy is being propped up on AI stocks. If they are allowed to crash, the consequences would be extreme all across the board. See the recent worming into index and pension funds. If they collapse now, a lot of regular people are going to get wiped out. Should the government bail them out or somehow stop the collapse? Arguable. Will they anyway? Almost certainly. These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage to the national (and global) economy precisely so that the taxpayer will be left holding the bag if and when it all comes crashing down. Capitalism is rotten to the core and there's no fix for it.
    - fc417fc802 4mo ago
      > These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage Where is this assumption of malicious intent coming from? This has all been fueled by a global AI hype that might or might not prove to be justified in the end. The overall economic situation looks (IMO) quite similar to that of the railroads in the US and those did ultimately fail and were nationalized(ish). The current situation is hardly limited to the US and capitalism. China also appears to be actively reorganizing their economy around AI.
  - pjc50 4mo ago
    Irish banking was bailed out at huge expense by the Irish taxpayer, a loan of the value of 40% of GDP at the time: https://www.irishpost.com/business/ireland-sells-the-last-of-its-aib-shares-returning-it-to-private-ownership-292690 https://www.irishpost.com/business/ireland-sells-the-last-of... (note: Allied Irish Banks and Anglo Irish Bank are different organizations with the same initials; the latter is the massively fraudulent one run by Sean Quinn who did eventually see a small amount of jail time)
bpodgursky 4mo ago
A lot of people are emotionally unprepared for a world where the music doesn't stop.
- raducu 4mo ago
  > A lot of people are emotionally unprepared for a world where the music doesn't stop. I've been wrong before. However, when was the last time this business model made sense -- that facebook, SpaceX and others, all just pivot from their market niche to general purpose AI datacenter providers. How on Earth does this make sense? What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ? These are all very high value added companies going into comodity AI hosting and they're all going to make a killing?
  - treis 4mo ago
    >What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ? Nvidia goes back to being a 100 billion dollar business and everyone else reaps the benefits of cheap tokens.
    - doctorwho42 4mo ago
      So Nvidia will lose 94.5% of their market cap, and you think that will not effect anything beyond AI?
      - trollbridge 4mo ago
        There's an assumption here that Nvidia will stop innovating.
        mlnj 4mo ago
        The only assumption I am making is that NVIDIA and others dig thier claws into western governments and make decade long contracts for even greater surveillance. Trillions of dollars worth.
Qhemlomo 4mo ago
At least Alphabet, Microsoft and Amazon can afford it. Nvidia is not losing anything if their stock falls. So whats left? The typical candidates of course: We poor people. 401k, ETF, etc. we pay the bill.
- TSiege 4mo ago
  If Alphabet can afford it why are they issuing $80B in new shares for fresh capital?
  - skybrian 4mo ago
    It makes good financial sense for a company to sell shares when the price is high and do stock buybacks when it's low. I guess they think the price is on the high side? Also, selling shares puts them in a better position to survive a downturn (more cash, less debt).
    - Analemma_ 4mo ago
      Google is also issuing a bunch of debt this year. It sounds like they need a lot of capital and want to keep a particular debt/equity ratio, rather than having a strong opinion on their share price.
    - jorvi 4mo ago
      In a real competitive market it would never make financial sense to do stock buybacks because competition is so fierce you need to invest it all in R&D and sharp prices for your customers. See the Chinese EV market. Stock buybacks are also a tax trick. They're just holistically evil and should have never been made legal.
  - Qhemlomo 4mo ago
    Just look at the net income of alphabet. Whatever financial games they play in the background, doesn't matter when you make that much per 2 quarters alone.
  - matwood 4mo ago
mschuster91 4mo ago
> I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops? A financial crash that will make the 2007ff crisis look tame in comparison. That is why Anthropic, OpenAI and SpaceX (which xAI belongs to) are all going public soon and why NASDAQ bent the rules to include them... the current owners all want to raid pension savings worldwide [1] to get their payday before the bubble inevitably bursts. And when it bursts, you can bet that the vultures will use their fresh cash to buy up assets at fire-sale prices. For the truly rich, a boom-bust cycle is only one thing, an opportunity to achieve extraordinary profit. [1] https://news.ycombinator.com/item?id=48369391 https://news.ycombinator.com/item?id=48369391
- TSiege 4mo ago
  It's hard for me to see this being bigger than the great recession unless there's some vulnerabilities in the banking system we're not aware of. However, the amount of money that's being spent is going to demand a large return that I'm not sure will be made whole given the scale of investment in a time frame they want
  - mschuster91 4mo ago
    > It's hard for me to see this being bigger than the great recession unless there's some vulnerabilities in the banking system we're not aware of. The scenario I see is write-offs. At the moment there are hundreds of billions in IOUs being passed around, much more in liabilities than Lehman had back then in 2007. Compounding that is the frankly insane valuation - it's as clear as day that at least one of the major AI shops will go bust, they all run at a (huge) loss and sooner or later, one of them will run out of cash before achieving market dominance. Unfortunately, OpenAI and Anthropic are valued at almost 1 trillion $ - backed by nothing but the hope on the winner surviving and achieving the classic VC-backed near-monopoly. The staff can be poached, they don't hold much in IP like patents, the servers and GPUs are mostly owned by third parties like AWS, Microsoft, Google or Oracle - once the cash runs out, they can't sell any assets for even some runway extension because there are no assets. Even the model weights and training data aren't worth much - all competitors already have training data sets of their own, it does not make sense to acquire further data, and model weights are being rendered obsolete by the constant churn of open-weight models particularly from China. SpaceX is valued even higher, but unlike the other two candidates, they still at least got a viable business even if the entire AI BS bubble collapses, Starlink is a money printer and there's no alternative in sight that matches SpaceX and their reusable rockets. Now, if either of the three even experiences a large drop in valuation for whatever reason, it's not just experienced VCs that can readily afford (and expect) investments to fail, but this time a lot of "everyday" investment vehicles (such as pension funds) will have to issue write-off losses, and now that they are publicly traded, that may also trigger stop-loss cascade orders further dropping prices, and retail investors will probably join in on the mass panic. That's the #1 risk IMHO. The #2 risk is that after a collapse, the service providers (i.e. the ones owning the servers) will be sitting on a ton of hardware that has nowhere near recouped its cost. AWS, MS and Google can probably repurpose most of the hardware for their own use and rent out what remains, but they will have to eat significant accounting losses, provoking again a drop in their stock price, but this time with even more blast radius as all three of them are established stock index (and thus ETF) members that a looooot of people have exposure to. But someone like Oracle? They might actually get fried for good. And the #3 risk is further downstream, particularly relating to NVDA. They have enjoyed years of insane profits because they are the only ones making high-performance AI chips. When demand for new chips collapses due to the event(s) I just described, they can easily shift their TSMC production slots back to GPU wafers and sell these to gamers - but at a far lower profit than before, which again can trigger stock price drops and write-offs. I won't go further downstream - TSMC and their suppliers are IMHO pretty safe because there is just so much pent up demand from everything not AI, and the construction companies building datacenters don't have too much of a blast radius when the big guns stop expansion projects. The concrete scenario I'm really, really afraid of: all three succeed with their IPOs, maybe they all survive a year and get included even in S&P 500. The existing shareholders and insiders all slowly dump a lot of their vested stock onto the public market, which in cleartext means into the dozens of billions of $ of retirement contributions. One day, the bubble bursts for whatever reason. The stock markets drop in a panic sell-off, either triggered by stop-loss orders or because retail investors are a herd of sheeple (just like in the 1st covid lockdown). Eventually, circuit breakers on the stock markets will trigger (just like they did in the GME post-apes collapse) and trading will pause, but it will resume until the markets have adjusted to the new valuation... and once the dust clears up, there will be a lot of blood on the floor. Possibly even riots, depending just how much retirement assets just got wiped out.
deleted 4mo ago
[deleted]
treis 4mo ago
There's no realistic way for the music to stop. The demand for LLMs is staggering and the big providers are charging full freight for inference. They might not make back the money from training but these data centers are definitely going to be fully utilized for at least the next 5 years.
- stefan_ 4mo ago
  Data center operators are in the business of selling electricity. They do not command large PE multiples. This is an even worse business, because xAI decided to also be the bagholder for the NVIDIA graphic cards. Not to mention they finance an unreasonable number of 20-somethings on way too large salaries with shitty opinions and no AGI delivered.
  - chatmasta 4mo ago
    Datacenter operators who rent space are selling electricity. SpaceX is selling a fully built datacenter with compute designed for a specific purpose. They’re operating at a higher level of the value chain and can charge accordingly.
    - SecretDreams 4mo ago
      What's their novelty or moat to maintain the value chain? And why do we only see google, who already owns it, raising their hand to rent at these prices?
      - Brybry 4mo ago
        Anthropic is also paying $1.25 billion a month for xAI datacenter compute (though Google does own ~14%? of Anthropic too). [1] https://www.businessinsider.com/spacex-ipo-anthropic-paying-ai-compute-2026-5 https://www.businessinsider.com/spacex-ipo-anthropic-paying-... [2] https://www.nytimes.com/2025/03/11/technology/google-investment-anthropic.html https://www.nytimes.com/2025/03/11/technology/google-investm...
SecretDreams 4mo ago
> What happens when the music stops? That's a problem for your kids to figure out ~ those currently getting enriched from these schemes.
colechristensen 4mo ago
>What happens when the music stops? Bubble bursts, somewhere between 2008 housing crisis and the dotcom bust. Really dependent on if there are any OTHER structural problems to compound a fast re-valuation of tech stocks. There's plenty of noise about banks holding large amounts of bad private credit debt. There could be a lot or only a little collapse. There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation. Definitive peace in Iran combined with some sort of sobering AI news signaling the end to the infinite growth party could crush the markets.
- ToucanLoucan 4mo ago
  The post-information age has never felt so well-named as it does lately. Investors dumping billions into completely unproven and, largely, undesired tech. Why? Because the Valley doesn't have anything else to sell, seemingly. Either way, as always, we'll do it the American Way: Privatize the profits, socialize the losses.
  - colechristensen 4mo ago
    >The post-information age has never felt so well-named as it does lately. Investors dumping billions into completely unproven and, largely, undesired tech. Why? Eh. There's too much money. Covid response involved printing a lot of money and it all ended up somewhere. The chaos of the current administration has made everything considerably harder to price and the coincidental rise of the LLM has put us in strange situation that is legitimately difficult to price things correctly.
- SlinkyOnStairs 4mo ago
  > There's plenty of noise about banks holding large amounts of bad private credit debt. This is still only big enough to cause funny banking collapses not actual 2008 scale financial disasters. Banks hold a lot of bad debt, but it's isolated from consumer accounts. Might not want to hold equity in SoftBank though. > There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation. The big concern lies in what the Trump admin will do. Things could end up merely a bad recession, like the Dotcom and Telecom bubble. Or they can attempt to keep the bubble going once it collapses, crashing interest rates, and doom the US economy.
gowld 4mo ago
Answering that question requires determining how much of the valuation is predicated on growth in AI spending from Google->xAI, but not counted as a forecasted expense for Google, and similar for other deals. Circular deals aren't bad; what's potentially bad is if those deals are misinterpreted by active investores.
tcp_handshaker 4mo ago
The awkward silence at this critical point of this interview... https://youtu.be/sL9hq7Qj1qc?t=252 https://youtu.be/sL9hq7Qj1qc?t=252 shows why the boat is about to go down. The sci-fi SpaceX S1 talks about asteroid mining and other imaginary chimeric stuff like space data centers... while 80 to 90 of the case is about AI. But their AI case is like BMW bragging about their thriving auto business...while renting all their car factories to Toyota.
- appplication 4mo ago
  It’s funny because that is a guy with enough sense to both see what is going on and also not short it, because he knows that none of this actually matters with regard to stock performance for a properly frothy investor class.
alfalfasprout 4mo ago
It's not just that there's a circular deal it's that they're prevalent. And worse, with frontier labs IPOing seeking astronomical valuations that means a lot of the public is now exposed too (even if they don't all get fast-tracked into eg; the SP500). The problem is the valuations assume astronomical growth... that is likely impossible for all of them to simultaneously achieve. Which means something's got to give.
nonethewiser 4mo ago
What's circular?
- nemomarx 4mo ago
  Google rents from SpaceX enough to show profitability, so that SpaceX can IPO and make googles early shares worth more than enough to pay for the renting they're doing. Great deal for Google but they end up basically just paying spacex to pay them back, right?
  - irishcoffee 4mo ago
    I believe you've described "investing with a hope for a profitable return" which is usually the point of investing. Circular investing is a thing that is happening with all of these companies related to language models. Google hoping for a ROI isn't a great example of that.
    - olyjohn 4mo ago
      Since when is leasing capacity in a datacenter considered investing?
      - irishcoffee 4mo ago
        Why does one lease something? To provide value equal or better to the cost, no?
        fwip 4mo ago
        If I lease an apartment for two years, that's not an investment.
        dmix 4mo ago
        In accounting terms it’s not an investment it’s an operating expense or in your example a personal expense, but if you leased a property and operated a business (ie an AirBnB for an apartment) it could be considered as part of an investment as it’s a means to make a profit.
elorant 4mo ago
When the music stops we could start buying hardware again at rational prices.
- NetOpWibby 4mo ago
  This is what I’m looking forward to
  - ryandrake 4mo ago
    I can't wait until these datacenters go bust and bulk DDR5 RAM and GPUs are sold on pallets by the kilogram rather than by the gigabyte.
    - undersuit 4mo ago
      So little of that is going to happen. The DDR5 will be registered DIMMs. The GPUs will be 600W paperweights with a custom form factor. Similarly the NICs and other PCI-E accelerators. The motherboards also adopt custom form factors to fit in racks. The hard drives will be using SAS connectors. The flash will be in E1.S form factors. The server CPUs that you want for a home desktop or small server, high clock SKUs, will be in high demand. Any savings for someone willing to build a system from second-hand server hardware will be eaten by using adapters or sourcing a rack. I'm not saying you won't be able to make a slightly outdated frankenserver with more compute than you need, I'm saying that's not going to bring down prices for Grandma's machine that she needs working to check on her retirement account.
- idiotsecant 4mo ago
  I dont think so. These entities and the hardware they own would be bought for legitimate AI use long before they'd hit the open market. AI is very useful, and even profitable at the inference level. It's just an open question whether this monumental amount of spend for research is worth it.
xiaoyu2006 4mo ago
These companies are too big to fail. I'm afraid the tax payers will be the ultimate consequences bearer.
tsunamifury 4mo ago
The question you should be asking is who prints the money that materializes those valuations. And who gets stuck with the bonds.
atleastoptimal 4mo ago
The music would have a risk of "stopping" if these deals were backed by a speculative entity. However AI actually has real value/revenue, and is not a speculative product (i.e. people aren't buying tokens to resell them, a token is "consumed" at moment of inference)
- Terr_ 4mo ago
  That's like saying "nobody is speculating in Enron stock" simply because there was electrical power that was sold for real revenue and consumed.
  - atleastoptimal 4mo ago
    Enron collapsed due to legitimate fraud. To imply Enron is an apt comparison requires assertion that AI companies are actually cooking the books. Is that what you are saying?
    - suggala 4mo ago
      Circular dealing or round tripping is a form of cooking books and sometimes results in accounting fraud. Especially when circular revenue is booked without cash flow growth. Do you see cash flow growth on any side of these transactions.
    - Terr_ 4mo ago
      Please address the primary point first: Selling some product does not disprove speculation. In the case of Enron, people were obviously speculating in its stock, and that remains true regardless of why it collapsed later, or even whether it collapsed at all. I say "first" because if you still can't agree that speculation in AI stocks even exists, then it's pointless to discuss what people might be doing to exploit or encourage it.
      - atleastoptimal 4mo ago
        Speculation exists for every security. However wrt revenue numbers, Anthropic/OpenAI’s revenues are largely made of companies/individuals purchasing tokens. Enron’s was accounting which stated future potential revenue as current earnings. They are not the same. Enron pulled off a lot of shady schemes to hide their accounting practices. All of the “circular deals” AI labs are doing are publicly known and clear to see, so its not like anyone who knows what a circular deal simply knows something everyone doesn’t. Also to be more specific about our point of disagreement, I think we are referring to speculation in different domains. When I brought it up, I am referring to the fact that any companies whose revenue is driven by a speculative bubble (like what precipitated the 2008 crisis) would be at risk of massive losses "if the music stops". Anthropic/OpenAI aren't flipping assets. It is true that VC funding is based on speculation, but their core business model is producing massive revenue growth on selling tokens.
mohamedkoubaa 4mo ago
I have a riddle for you: If it looks like a bubble and waddles like a bubble and quacks like a bubble what is it?
- crystal_revenge 4mo ago
  It's not interesting to say "this is a bubble!" I've heard that about virtually everything (and in many cases it's likely true). What is interesting is pointing out the mechanics that make the bubble pop. This is precisely what makes the movie the Big Short interesting: we see that people did identify, within a reasonable time frame, when people would start defaulting and how that would cascade into a true crisis. It's pretty clear that while the fruits of AI are quite useful, the entire thing is rife with very questionable financial engineering... but I still don't know what it is that makes all of this break. For example, it's obvious that the SpaceX IPO is a massive wealth transfer program, but it's not obvious that it will immediately end in a crash. Given how irrational the stock market has been, I don't see a reason it can't continue to be irrational for long after the bag has been handed over to the retail investors and retirement funds.
  - PixyMisa 4mo ago
    Also, SpaceX is a rocket and communications company with a secondary AI play, where Anthropic and OpenAI are pure AI companies. And it is far and away the world leader in satellite launch capacity and satellite internet. Does that justify the massive valuation? Probably not. But it's a factor.
    - noncoml 4mo ago
      If you sum the valuations of the company from its individual parts, no one sane would value it more than half a billion. But look at TSLA a P/E still at 370. Who is the smart and who is the idiot? The one who invested in it $40 or the one who was saying that even at $40 it was already too expensive?
- rvz 4mo ago
  A bubble waiting to burst.
bko 4mo ago
Or, hear me out, maybe there's a compute shortage and xAI has compute and manages that well. There are no dark GPUs. Compute translates directly to money for these frontier labs. I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
- jklinger410 4mo ago
  > I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it. Let us pin this comment and see how it ages
  - fragmede 4mo ago
    Let's say it does all collapse. How would we know it's the 5-6% stake (which in my mind doesn't make them a "major shareholder") that was a circular deal that was the fall of the house of cards vs some other segment?
    - bastawhiz 4mo ago
      It doesn't even have to be circular. One company is juicing another company's valuation to make their stake worth more. Down the road they'll sell their stake, end the deal, and leave everyone else holding the bag. Nothing about this deal is about better technology or talent. It's about an opportunity that's too juicy for Google to pass up on.
    - senordevnyc 4mo ago
      When has that kind of nuance ever stopped an angry mob with an axe to grind?
- oblio 4mo ago
  > I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it. Alphabet/Google profits: Q1 2025: $34.54 billion Q2 2025: $28.20 billion Q3 2025: $34.98 billion Q4 2025: $34.46 billion <<Q1 2026: $62.58 billion>> Amazon profits: Q1 2025: $17.1 billion Q2 2025: $18.16 billion Q3 2025: $21.2 billion Q4 2025: $21.19 billion <<Q1 2026: $30.3 billion>> Both Alphabet/Google and Amazon have invested recently into Anthropic and are doing all sorts of financial chicanery. https://www.youtube.com/watch?v=-bjNrGFiAI4 https://www.youtube.com/watch?v=-bjNrGFiAI4 Nah, man, it's all fine, they're just going to take down the entire global financial system doing this crap, and by global, I mean <<everyone's>> pensions are going to take a hit, even "fully funded" pension systems.
EA-3167 4mo ago
Retail investors are currently being set up to hold that bag, and presumably the companies themselves will get government bailouts, so the taxpayer gets hit coming and going. It's not even subtle at this point, what with the attempt at S&P rules changes, the insane valuation, the attempt to change the trade-through rule, and more.
redox99 4mo ago
You seem to imply that with this deal their shares are worth 88B but without it they're worthless. It's very hard to know how much the deal actually increases SpaceX market cap, but unless Google exits their SpaceX position soon it doesn't even make much sense as a circular deal.
- Retric 4mo ago
  Executive compensation is often based around share prices, so this can be worth quite a lot to the people making these decisions without any long term upside for the company. If you want to understand how companies behave you really need to look at things from the perspective of people making the decisions.
  - redox99 4mo ago
    I don't see Alphabet share price changing much just because of SpaceX being valued 2T instead of lets say 1T (being extremely generous). In fact this deal will hurt their profits, which is more likely to hurt Alphabet stock price than the valuation of an asset that they hold.
    - deleted 4mo ago
      [deleted]
    - panopticon 4mo ago
      > I don't see Alphabet share price changing much just because of SpaceX being valued 2T instead of lets say 1T Half of Alphabet's revenue increase last quarter came from marking up unrealized gains in their Anthropic investments. I'm not saying Alphabet is doing this to juice the share price, but I want to point out that they don't have to sell shares to post banner earnings results and see a 10% jump in share price overnight.
      - redox99 4mo ago
        That's a good point
xyst 4mo ago
> What happens when the music stops? Government hands Wall Street another bailout to the tune of trillions of dollars. Wall Street executives and hedge funds use funds to enrich themselves as usual. Main Street and tax payer get fisted again. These massive data centers go bust. Get gutted during bankruptcy and foreclosure proceedings Public deals with the fallout with no help from government.
mannanj 4mo ago
Someone told me this isn't "fraud". (Was in another one of these hacker news thread where a guy called all this Brilliant Financial Engineering). How is this not unethical at least, it befuddles me. Maybe we've come to celebrate unethical behavior and its become so normalized that we forget to ask ourselves what should be allowed.
mikeryan 4mo ago
Google also just announced a new equity raise of $80B. I have no idea if doing this via equity vs debt is trying to suck some of the wind out of the IPO Market for Anthropic and OpenAI but it’s going to be interesting to see how the markets deal with all the new equity being floated. Someone isn’t going to hit their raise targets and the later IPOs may be the ones holding the bag.
- kccqzy 4mo ago
  The $80B of equity raise is nothing compared to its previous share buyback programs.
  - senordevnyc 4mo ago
    It looks like they've done annual buybacks of about $70b the last few years, so your claim doesn't really hold water.
- deleted 4mo ago
  [deleted]
cyanydeez 4mo ago
we should all be asking where the downstream ROI suppose to come from, because it sure as shit isnt in any of these AI endevours.
bluegatty 4mo ago
It's very healthy to be skeptical but there's nothing weird specifically about this. It gets weird when people stop looking at the books and ignore the circularity. It also increase risk by reducing resiliency. It's also 'cleaner' then the Nvidia style deals with OAI who are customers. 'Google Finance' is investing in a company. Just so happens that company leases something to Google. Not so bad. Nvidia invests in OAI so that money comes right back as sales <- much more conspicuous, looks like 'vendor financing'.
coliveira 4mo ago
This, along with many other recent deals, shows that there is no real competition between these mega companies. They're at this point only orchestrating the market (or should I say scheming) to build an oligopoly and move as much resources and money to the hands their little group through circular deals.
shitlord 4mo ago
When the music stops, this type of trade simply stops being profitable. It only works because of SpaceX's insane P/E.
0xbadcafebee 4mo ago
When the music stops, all the AI companies fall, except Google. Google remains the world's largest advertiser and a cloud provider. They actually make money, own their own hardware, etc. They can survive a stock market bust and still come out victorious, because they still have a product people want to buy (ads). The rest don't.
_heimdall 4mo ago
Given all the rules changes related to IPOs that also just went I to effect, I can only assume their hope is that the public is holding the bag when the music stops and that they think it is going to happen quick.
podgorniy 4mo ago
> What happens when the music stops? "To big to fail" + money printing going brr-r-r-r When these companies get in to the index and into the pensions, their share price will become a political problem.

by TSiege 4mo ago

AznHisoka 4mo ago

Someone gets bailed out and the cycle starts again. Isnt this how it works?

downrightmike 4mo ago
Hyperinflation to make the needed bailout money
- staplers 4mo ago
  That's done quietly behind the scenes so leaders can blame something else for inflation. See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.
  - drivebyhooting 4mo ago
    I don’t understand how to read those charts.
    - smallmancontrov 4mo ago
      Any time you see a price denominated in $, divide by that chart.
      - stymaar 4mo ago
        The idea that inflation and the money supply are linked is one of the most dumb one in folk economics. Just look at these charts: they were declining when inflation was raging on in 2022-23 …
        smallmancontrov 4mo ago
        Lagged processes are one of the most fundamental concepts in economics. If merely recognizing the possibility that one could be at play here is throwing you for a loop, you need the simplified monetary model more than most.
        stymaar 4mo ago
        Where's the hell is the lag on these graphs though!? The money supply grows both before, and after the inflationary spike. (And the fact that it stops increasing when inflation is high is not surprising at all, by the way, high inflation make the central bank raise interest rates, which reduce credit, which is where money comes from).
        smallmancontrov 4mo ago
        The lag is where you were complaining it was.
        stymaar 4mo ago
        Do you know what “lag” means?
        ryan_j_naughton 4mo ago
        > "The idea that inflation and the money supply are linked is one of the most dumb one in folk economics" "folk economics" implies it is by untrained people. Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply, and one certainly cannot call Friedman a "folk economist" considering he won the Nobel prize in economics and was a professor at the University of Chicago. Note: I am not saying he is right or supporting his belief. I am merely stating that such a belief is not a "folk economics" belief. This belief is still very prevalent in the freshwater schools of economics. [1] As a personal anecdote, at Ronald Coase's 100th birthday party, I personally got Gary Becker and Richard Posner debating a very related topic (whether and by what degree the velocity of money of fluctuates and whether helicopter drops of cash would have been better during the early days of the money supply collapse in 2008/2009 than just giving money to the banks). In a room full of Nobel Prize winning economists in 2010, there was a very rigorous debate on the topic. [1] https://en.wikipedia.org/wiki/Saltwater_and_freshwater_economics https://en.wikipedia.org/wiki/Saltwater_and_freshwater_econo...
  - barrenko 4mo ago
    Banks not needing people's money is quite a bad thing. EDIT: M1 looks like a damn sigmoid.
  - gruez 4mo ago
    >See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/TOTBKCR https://fred.stlouisfed.org/series/TOTBKCR And you would have been massively wrong. People have been complaining about quantitative easing since post GFC, and if you took the figures at face value, those would imply inflation was nearly 100% between the end of GFC and before the pandemic. Whatever you thought about the post-pandemic inflation, the period between GFC and pre-pandemic definitely did not see the level of inflation implied by those figures.
    - disgruntledphd2 4mo ago
      I mean, it sortof did in assets, just not in the changes tracked by CPI.
      - downrightmike 4mo ago
        That's because they take and modify what is tracked in the CPI at will
        gruez 4mo ago
        https://www.bls.gov/cpi/tables/relative-importance/home.htm https://www.bls.gov/cpi/tables/relative-importance/home.htm What do you find controversial, and would cause a material difference in the headline inflation rate?
        VirusNewbie 4mo ago
        Housing has a massive lag when it comes to CPI. CPI works by asking how much people pay for rent. If home prices raise 20% in one year (not at all unreasonable in various times in the last ten years), it takes a long time for that to be reflected as many people have their rents fixed, some people have rent control, some landlords will only raise rents on new tenants, etc.
        4mo ago
timacles 4mo ago
We are basically dealing with the fallout of the 2008 GFC bailout to this day. The fiat economic system is irreparably broken, and we are circling the drain. Another bailout is _probably_ inevitable. But the cycle sure as hell isnt resetting and we are speeding towards something... what it is is unclear though, and when is also unclear. The part people cant wrap around is the scale of it and the time it takes to go through the super cycle. Theoretically, it all started with the Dot com bubble, which indirectly cause the housing bubble, which caused the GFC. Which caused whatever happened in 2019, which caused QE in 2022 under the guise of COVID, which is causing whatever the hell is happening now. Capitalism has become uncorked, and money is irreversibly flowing to the top at an increasing rate. The logical next stage is that like 75% of the world's population is literally not even part of any economy. And that doesnt really make any sense
- philipallstar 4mo ago
  Sigh, no. Money is not flowing; company valuation might be, but that's temporary and only works if the company keeps delivering insane amounts of value.
  - fc417fc802 4mo ago
    So the founders sell plenty of stock while the price is high and then when their valuation crashes sure they "lost" half their net worth but the other half is still there. I'm not saying that's what's happening, just making it clear that company valuation not being permanent is not a valid argument against money flowing to the top.
- azan_ 4mo ago
  You've made lots of (wild) claims, but provided zero support for them. Also didn't bottom income quartile see the largest growth in last few years?
- mannanj 4mo ago
  yeah I intuitively have felt something like this has been happening, too. And finding the evidence is such an immense task, and feels way out of my current energy level. When COVID was ongoing there was a term floating around I liked, "Psychosis" was it. The spell is like that of, denial? Terror & shock? Trauma might be better? Looking at trauma responses and how to detect it in humans is an interesting perspective to look at all this with. Personally, if I look at it from "people are afraid, traumatized, defending themselves" and use that to extrapolate how most people (the masses, the non-rich) would act and also the rich - that points me to why theres such a sudden hastening of action and pace of wealth up towards the top in the name of AI & war.
shmel 4mo ago
or, hear me out, we can try the Irish way? Just let them fail ffs
- vitally3643 4mo ago
  Unfortunately, the entire US economy is being propped up on AI stocks. If they are allowed to crash, the consequences would be extreme all across the board. See the recent worming into index and pension funds. If they collapse now, a lot of regular people are going to get wiped out. Should the government bail them out or somehow stop the collapse? Arguable. Will they anyway? Almost certainly. These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage to the national (and global) economy precisely so that the taxpayer will be left holding the bag if and when it all comes crashing down. Capitalism is rotten to the core and there's no fix for it.
  - fc417fc802 4mo ago
    > These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage Where is this assumption of malicious intent coming from? This has all been fueled by a global AI hype that might or might not prove to be justified in the end. The overall economic situation looks (IMO) quite similar to that of the railroads in the US and those did ultimately fail and were nationalized(ish). The current situation is hardly limited to the US and capitalism. China also appears to be actively reorganizing their economy around AI.
- pjc50 4mo ago
  Irish banking was bailed out at huge expense by the Irish taxpayer, a loan of the value of 40% of GDP at the time: https://www.irishpost.com/business/ireland-sells-the-last-of-its-aib-shares-returning-it-to-private-ownership-292690 https://www.irishpost.com/business/ireland-sells-the-last-of... (note: Allied Irish Banks and Anglo Irish Bank are different organizations with the same initials; the latter is the massively fraudulent one run by Sean Quinn who did eventually see a small amount of jail time)

bpodgursky 4mo ago

A lot of people are emotionally unprepared for a world where the music doesn't stop.

raducu 4mo ago
> A lot of people are emotionally unprepared for a world where the music doesn't stop. I've been wrong before. However, when was the last time this business model made sense -- that facebook, SpaceX and others, all just pivot from their market niche to general purpose AI datacenter providers. How on Earth does this make sense? What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ? These are all very high value added companies going into comodity AI hosting and they're all going to make a killing?
- treis 4mo ago
  >What happens in a few years when DeepSeek runs on the chinese chips like the Huawei Ascend at a fraction of the cost ? Nvidia goes back to being a 100 billion dollar business and everyone else reaps the benefits of cheap tokens.
  - doctorwho42 4mo ago
    So Nvidia will lose 94.5% of their market cap, and you think that will not effect anything beyond AI?
    - trollbridge 4mo ago
      There's an assumption here that Nvidia will stop innovating.
      - mlnj 4mo ago
        The only assumption I am making is that NVIDIA and others dig thier claws into western governments and make decade long contracts for even greater surveillance. Trillions of dollars worth.

Qhemlomo 4mo ago

At least Alphabet, Microsoft and Amazon can afford it. Nvidia is not losing anything if their stock falls. So whats left? The typical candidates of course: We poor people. 401k, ETF, etc. we pay the bill.

TSiege 4mo ago
If Alphabet can afford it why are they issuing $80B in new shares for fresh capital?
- skybrian 4mo ago
  It makes good financial sense for a company to sell shares when the price is high and do stock buybacks when it's low. I guess they think the price is on the high side? Also, selling shares puts them in a better position to survive a downturn (more cash, less debt).
  - Analemma_ 4mo ago
    Google is also issuing a bunch of debt this year. It sounds like they need a lot of capital and want to keep a particular debt/equity ratio, rather than having a strong opinion on their share price.
  - jorvi 4mo ago
    In a real competitive market it would never make financial sense to do stock buybacks because competition is so fierce you need to invest it all in R&D and sharp prices for your customers. See the Chinese EV market. Stock buybacks are also a tax trick. They're just holistically evil and should have never been made legal.
- Qhemlomo 4mo ago
  Just look at the net income of alphabet. Whatever financial games they play in the background, doesn't matter when you make that much per 2 quarters alone.
- matwood 4mo ago

mschuster91 4mo ago

> I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops? A financial crash that will make the 2007ff crisis look tame in comparison. That is why Anthropic, OpenAI and SpaceX (which xAI belongs to) are all going public soon and why NASDAQ bent the rules to include them... the current owners all want to raid pension savings worldwide [1] to get their payday before the bubble inevitably bursts. And when it bursts, you can bet that the vultures will use their fresh cash to buy up assets at fire-sale prices. For the truly rich, a boom-bust cycle is only one thing, an opportunity to achieve extraordinary profit. [1] https://news.ycombinator.com/item?id=48369391 https://news.ycombinator.com/item?id=48369391

TSiege 4mo ago
It's hard for me to see this being bigger than the great recession unless there's some vulnerabilities in the banking system we're not aware of. However, the amount of money that's being spent is going to demand a large return that I'm not sure will be made whole given the scale of investment in a time frame they want
- mschuster91 4mo ago
  > It's hard for me to see this being bigger than the great recession unless there's some vulnerabilities in the banking system we're not aware of. The scenario I see is write-offs. At the moment there are hundreds of billions in IOUs being passed around, much more in liabilities than Lehman had back then in 2007. Compounding that is the frankly insane valuation - it's as clear as day that at least one of the major AI shops will go bust, they all run at a (huge) loss and sooner or later, one of them will run out of cash before achieving market dominance. Unfortunately, OpenAI and Anthropic are valued at almost 1 trillion $ - backed by nothing but the hope on the winner surviving and achieving the classic VC-backed near-monopoly. The staff can be poached, they don't hold much in IP like patents, the servers and GPUs are mostly owned by third parties like AWS, Microsoft, Google or Oracle - once the cash runs out, they can't sell any assets for even some runway extension because there are no assets. Even the model weights and training data aren't worth much - all competitors already have training data sets of their own, it does not make sense to acquire further data, and model weights are being rendered obsolete by the constant churn of open-weight models particularly from China. SpaceX is valued even higher, but unlike the other two candidates, they still at least got a viable business even if the entire AI BS bubble collapses, Starlink is a money printer and there's no alternative in sight that matches SpaceX and their reusable rockets. Now, if either of the three even experiences a large drop in valuation for whatever reason, it's not just experienced VCs that can readily afford (and expect) investments to fail, but this time a lot of "everyday" investment vehicles (such as pension funds) will have to issue write-off losses, and now that they are publicly traded, that may also trigger stop-loss cascade orders further dropping prices, and retail investors will probably join in on the mass panic. That's the #1 risk IMHO. The #2 risk is that after a collapse, the service providers (i.e. the ones owning the servers) will be sitting on a ton of hardware that has nowhere near recouped its cost. AWS, MS and Google can probably repurpose most of the hardware for their own use and rent out what remains, but they will have to eat significant accounting losses, provoking again a drop in their stock price, but this time with even more blast radius as all three of them are established stock index (and thus ETF) members that a looooot of people have exposure to. But someone like Oracle? They might actually get fried for good. And the #3 risk is further downstream, particularly relating to NVDA. They have enjoyed years of insane profits because they are the only ones making high-performance AI chips. When demand for new chips collapses due to the event(s) I just described, they can easily shift their TSMC production slots back to GPU wafers and sell these to gamers - but at a far lower profit than before, which again can trigger stock price drops and write-offs. I won't go further downstream - TSMC and their suppliers are IMHO pretty safe because there is just so much pent up demand from everything not AI, and the construction companies building datacenters don't have too much of a blast radius when the big guns stop expansion projects. The concrete scenario I'm really, really afraid of: all three succeed with their IPOs, maybe they all survive a year and get included even in S&P 500. The existing shareholders and insiders all slowly dump a lot of their vested stock onto the public market, which in cleartext means into the dozens of billions of $ of retirement contributions. One day, the bubble bursts for whatever reason. The stock markets drop in a panic sell-off, either triggered by stop-loss orders or because retail investors are a herd of sheeple (just like in the 1st covid lockdown). Eventually, circuit breakers on the stock markets will trigger (just like they did in the GME post-apes collapse) and trading will pause, but it will resume until the markets have adjusted to the new valuation... and once the dust clears up, there will be a lot of blood on the floor. Possibly even riots, depending just how much retirement assets just got wiped out.

deleted 4mo ago

[deleted]

treis 4mo ago

There's no realistic way for the music to stop. The demand for LLMs is staggering and the big providers are charging full freight for inference. They might not make back the money from training but these data centers are definitely going to be fully utilized for at least the next 5 years.

stefan_ 4mo ago
Data center operators are in the business of selling electricity. They do not command large PE multiples. This is an even worse business, because xAI decided to also be the bagholder for the NVIDIA graphic cards. Not to mention they finance an unreasonable number of 20-somethings on way too large salaries with shitty opinions and no AGI delivered.
- chatmasta 4mo ago
  Datacenter operators who rent space are selling electricity. SpaceX is selling a fully built datacenter with compute designed for a specific purpose. They’re operating at a higher level of the value chain and can charge accordingly.
  - SecretDreams 4mo ago
    What's their novelty or moat to maintain the value chain? And why do we only see google, who already owns it, raising their hand to rent at these prices?
    - Brybry 4mo ago
      Anthropic is also paying $1.25 billion a month for xAI datacenter compute (though Google does own ~14%? of Anthropic too). [1] https://www.businessinsider.com/spacex-ipo-anthropic-paying-ai-compute-2026-5 https://www.businessinsider.com/spacex-ipo-anthropic-paying-... [2] https://www.nytimes.com/2025/03/11/technology/google-investment-anthropic.html https://www.nytimes.com/2025/03/11/technology/google-investm...

SecretDreams 4mo ago

> What happens when the music stops? That's a problem for your kids to figure out ~ those currently getting enriched from these schemes.

colechristensen 4mo ago

>What happens when the music stops? Bubble bursts, somewhere between 2008 housing crisis and the dotcom bust. Really dependent on if there are any OTHER structural problems to compound a fast re-valuation of tech stocks. There's plenty of noise about banks holding large amounts of bad private credit debt. There could be a lot or only a little collapse. There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation. Definitive peace in Iran combined with some sort of sobering AI news signaling the end to the infinite growth party could crush the markets.

ToucanLoucan 4mo ago
The post-information age has never felt so well-named as it does lately. Investors dumping billions into completely unproven and, largely, undesired tech. Why? Because the Valley doesn't have anything else to sell, seemingly. Either way, as always, we'll do it the American Way: Privatize the profits, socialize the losses.
- colechristensen 4mo ago
  >The post-information age has never felt so well-named as it does lately. Investors dumping billions into completely unproven and, largely, undesired tech. Why? Eh. There's too much money. Covid response involved printing a lot of money and it all ended up somewhere. The chaos of the current administration has made everything considerably harder to price and the coincidental rise of the LLM has put us in strange situation that is legitimately difficult to price things correctly.
SlinkyOnStairs 4mo ago
> There's plenty of noise about banks holding large amounts of bad private credit debt. This is still only big enough to cause funny banking collapses not actual 2008 scale financial disasters. Banks hold a lot of bad debt, but it's isolated from consumer accounts. Might not want to hold equity in SoftBank though. > There's so much uncertainty and the combination of war, high oil prices, and uncertainty about tarriffs that the market struggles to value anything as international fear drives investment into the US and high prices confusing whether growth is growth or just inflation. The big concern lies in what the Trump admin will do. Things could end up merely a bad recession, like the Dotcom and Telecom bubble. Or they can attempt to keep the bubble going once it collapses, crashing interest rates, and doom the US economy.

gowld 4mo ago

Answering that question requires determining how much of the valuation is predicated on growth in AI spending from Google->xAI, but not counted as a forecasted expense for Google, and similar for other deals. Circular deals aren't bad; what's potentially bad is if those deals are misinterpreted by active investores.

tcp_handshaker 4mo ago

The awkward silence at this critical point of this interview... https://youtu.be/sL9hq7Qj1qc?t=252 https://youtu.be/sL9hq7Qj1qc?t=252 shows why the boat is about to go down. The sci-fi SpaceX S1 talks about asteroid mining and other imaginary chimeric stuff like space data centers... while 80 to 90 of the case is about AI. But their AI case is like BMW bragging about their thriving auto business...while renting all their car factories to Toyota.

appplication 4mo ago
It’s funny because that is a guy with enough sense to both see what is going on and also not short it, because he knows that none of this actually matters with regard to stock performance for a properly frothy investor class.

alfalfasprout 4mo ago

It's not just that there's a circular deal it's that they're prevalent. And worse, with frontier labs IPOing seeking astronomical valuations that means a lot of the public is now exposed too (even if they don't all get fast-tracked into eg; the SP500). The problem is the valuations assume astronomical growth... that is likely impossible for all of them to simultaneously achieve. Which means something's got to give.

nonethewiser 4mo ago

What's circular?

nemomarx 4mo ago
Google rents from SpaceX enough to show profitability, so that SpaceX can IPO and make googles early shares worth more than enough to pay for the renting they're doing. Great deal for Google but they end up basically just paying spacex to pay them back, right?
- irishcoffee 4mo ago
  I believe you've described "investing with a hope for a profitable return" which is usually the point of investing. Circular investing is a thing that is happening with all of these companies related to language models. Google hoping for a ROI isn't a great example of that.
  - olyjohn 4mo ago
    Since when is leasing capacity in a datacenter considered investing?
    - irishcoffee 4mo ago
      Why does one lease something? To provide value equal or better to the cost, no?
      - fwip 4mo ago
        If I lease an apartment for two years, that's not an investment.
        dmix 4mo ago
        In accounting terms it’s not an investment it’s an operating expense or in your example a personal expense, but if you leased a property and operated a business (ie an AirBnB for an apartment) it could be considered as part of an investment as it’s a means to make a profit.

elorant 4mo ago

When the music stops we could start buying hardware again at rational prices.

NetOpWibby 4mo ago
This is what I’m looking forward to
- ryandrake 4mo ago
  I can't wait until these datacenters go bust and bulk DDR5 RAM and GPUs are sold on pallets by the kilogram rather than by the gigabyte.
  - undersuit 4mo ago
    So little of that is going to happen. The DDR5 will be registered DIMMs. The GPUs will be 600W paperweights with a custom form factor. Similarly the NICs and other PCI-E accelerators. The motherboards also adopt custom form factors to fit in racks. The hard drives will be using SAS connectors. The flash will be in E1.S form factors. The server CPUs that you want for a home desktop or small server, high clock SKUs, will be in high demand. Any savings for someone willing to build a system from second-hand server hardware will be eaten by using adapters or sourcing a rack. I'm not saying you won't be able to make a slightly outdated frankenserver with more compute than you need, I'm saying that's not going to bring down prices for Grandma's machine that she needs working to check on her retirement account.
idiotsecant 4mo ago
I dont think so. These entities and the hardware they own would be bought for legitimate AI use long before they'd hit the open market. AI is very useful, and even profitable at the inference level. It's just an open question whether this monumental amount of spend for research is worth it.

xiaoyu2006 4mo ago

These companies are too big to fail. I'm afraid the tax payers will be the ultimate consequences bearer.

tsunamifury 4mo ago

The question you should be asking is who prints the money that materializes those valuations. And who gets stuck with the bonds.

atleastoptimal 4mo ago

The music would have a risk of "stopping" if these deals were backed by a speculative entity. However AI actually has real value/revenue, and is not a speculative product (i.e. people aren't buying tokens to resell them, a token is "consumed" at moment of inference)

Terr_ 4mo ago
That's like saying "nobody is speculating in Enron stock" simply because there was electrical power that was sold for real revenue and consumed.
- atleastoptimal 4mo ago
  Enron collapsed due to legitimate fraud. To imply Enron is an apt comparison requires assertion that AI companies are actually cooking the books. Is that what you are saying?
  - suggala 4mo ago
    Circular dealing or round tripping is a form of cooking books and sometimes results in accounting fraud. Especially when circular revenue is booked without cash flow growth. Do you see cash flow growth on any side of these transactions.
  - Terr_ 4mo ago
    Please address the primary point first: Selling some product does not disprove speculation. In the case of Enron, people were obviously speculating in its stock, and that remains true regardless of why it collapsed later, or even whether it collapsed at all. I say "first" because if you still can't agree that speculation in AI stocks even exists, then it's pointless to discuss what people might be doing to exploit or encourage it.
    - atleastoptimal 4mo ago
      Speculation exists for every security. However wrt revenue numbers, Anthropic/OpenAI’s revenues are largely made of companies/individuals purchasing tokens. Enron’s was accounting which stated future potential revenue as current earnings. They are not the same. Enron pulled off a lot of shady schemes to hide their accounting practices. All of the “circular deals” AI labs are doing are publicly known and clear to see, so its not like anyone who knows what a circular deal simply knows something everyone doesn’t. Also to be more specific about our point of disagreement, I think we are referring to speculation in different domains. When I brought it up, I am referring to the fact that any companies whose revenue is driven by a speculative bubble (like what precipitated the 2008 crisis) would be at risk of massive losses "if the music stops". Anthropic/OpenAI aren't flipping assets. It is true that VC funding is based on speculation, but their core business model is producing massive revenue growth on selling tokens.

mohamedkoubaa 4mo ago

I have a riddle for you: If it looks like a bubble and waddles like a bubble and quacks like a bubble what is it?

crystal_revenge 4mo ago
It's not interesting to say "this is a bubble!" I've heard that about virtually everything (and in many cases it's likely true). What is interesting is pointing out the mechanics that make the bubble pop. This is precisely what makes the movie the Big Short interesting: we see that people did identify, within a reasonable time frame, when people would start defaulting and how that would cascade into a true crisis. It's pretty clear that while the fruits of AI are quite useful, the entire thing is rife with very questionable financial engineering... but I still don't know what it is that makes all of this break. For example, it's obvious that the SpaceX IPO is a massive wealth transfer program, but it's not obvious that it will immediately end in a crash. Given how irrational the stock market has been, I don't see a reason it can't continue to be irrational for long after the bag has been handed over to the retail investors and retirement funds.
- PixyMisa 4mo ago
  Also, SpaceX is a rocket and communications company with a secondary AI play, where Anthropic and OpenAI are pure AI companies. And it is far and away the world leader in satellite launch capacity and satellite internet. Does that justify the massive valuation? Probably not. But it's a factor.
  - noncoml 4mo ago
    If you sum the valuations of the company from its individual parts, no one sane would value it more than half a billion. But look at TSLA a P/E still at 370. Who is the smart and who is the idiot? The one who invested in it $40 or the one who was saying that even at $40 it was already too expensive?
rvz 4mo ago
A bubble waiting to burst.

bko 4mo ago

Or, hear me out, maybe there's a compute shortage and xAI has compute and manages that well. There are no dark GPUs. Compute translates directly to money for these frontier labs. I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.

jklinger410 4mo ago
> I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it. Let us pin this comment and see how it ages
- fragmede 4mo ago
  Let's say it does all collapse. How would we know it's the 5-6% stake (which in my mind doesn't make them a "major shareholder") that was a circular deal that was the fall of the house of cards vs some other segment?
  - bastawhiz 4mo ago
    It doesn't even have to be circular. One company is juicing another company's valuation to make their stake worth more. Down the road they'll sell their stake, end the deal, and leave everyone else holding the bag. Nothing about this deal is about better technology or talent. It's about an opportunity that's too juicy for Google to pass up on.
  - senordevnyc 4mo ago
    When has that kind of nuance ever stopped an angry mob with an axe to grind?
oblio 4mo ago
> I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it. Alphabet/Google profits: Q1 2025: $34.54 billion Q2 2025: $28.20 billion Q3 2025: $34.98 billion Q4 2025: $34.46 billion <<Q1 2026: $62.58 billion>> Amazon profits: Q1 2025: $17.1 billion Q2 2025: $18.16 billion Q3 2025: $21.2 billion Q4 2025: $21.19 billion <<Q1 2026: $30.3 billion>> Both Alphabet/Google and Amazon have invested recently into Anthropic and are doing all sorts of financial chicanery. https://www.youtube.com/watch?v=-bjNrGFiAI4 https://www.youtube.com/watch?v=-bjNrGFiAI4 Nah, man, it's all fine, they're just going to take down the entire global financial system doing this crap, and by global, I mean <<everyone's>> pensions are going to take a hit, even "fully funded" pension systems.

EA-3167 4mo ago

Retail investors are currently being set up to hold that bag, and presumably the companies themselves will get government bailouts, so the taxpayer gets hit coming and going. It's not even subtle at this point, what with the attempt at S&P rules changes, the insane valuation, the attempt to change the trade-through rule, and more.

redox99 4mo ago

You seem to imply that with this deal their shares are worth 88B but without it they're worthless. It's very hard to know how much the deal actually increases SpaceX market cap, but unless Google exits their SpaceX position soon it doesn't even make much sense as a circular deal.

Retric 4mo ago
Executive compensation is often based around share prices, so this can be worth quite a lot to the people making these decisions without any long term upside for the company. If you want to understand how companies behave you really need to look at things from the perspective of people making the decisions.
- redox99 4mo ago
  I don't see Alphabet share price changing much just because of SpaceX being valued 2T instead of lets say 1T (being extremely generous). In fact this deal will hurt their profits, which is more likely to hurt Alphabet stock price than the valuation of an asset that they hold.
  - deleted 4mo ago
    [deleted]
  - panopticon 4mo ago
    > I don't see Alphabet share price changing much just because of SpaceX being valued 2T instead of lets say 1T Half of Alphabet's revenue increase last quarter came from marking up unrealized gains in their Anthropic investments. I'm not saying Alphabet is doing this to juice the share price, but I want to point out that they don't have to sell shares to post banner earnings results and see a 10% jump in share price overnight.
    - redox99 4mo ago
      That's a good point

xyst 4mo ago

> What happens when the music stops? Government hands Wall Street another bailout to the tune of trillions of dollars. Wall Street executives and hedge funds use funds to enrich themselves as usual. Main Street and tax payer get fisted again. These massive data centers go bust. Get gutted during bankruptcy and foreclosure proceedings Public deals with the fallout with no help from government.

mannanj 4mo ago

Someone told me this isn't "fraud". (Was in another one of these hacker news thread where a guy called all this Brilliant Financial Engineering). How is this not unethical at least, it befuddles me. Maybe we've come to celebrate unethical behavior and its become so normalized that we forget to ask ourselves what should be allowed.

mikeryan 4mo ago

Google also just announced a new equity raise of $80B. I have no idea if doing this via equity vs debt is trying to suck some of the wind out of the IPO Market for Anthropic and OpenAI but it’s going to be interesting to see how the markets deal with all the new equity being floated. Someone isn’t going to hit their raise targets and the later IPOs may be the ones holding the bag.

kccqzy 4mo ago
The $80B of equity raise is nothing compared to its previous share buyback programs.
- senordevnyc 4mo ago
  It looks like they've done annual buybacks of about $70b the last few years, so your claim doesn't really hold water.
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cyanydeez 4mo ago

we should all be asking where the downstream ROI suppose to come from, because it sure as shit isnt in any of these AI endevours.

bluegatty 4mo ago

It's very healthy to be skeptical but there's nothing weird specifically about this. It gets weird when people stop looking at the books and ignore the circularity. It also increase risk by reducing resiliency. It's also 'cleaner' then the Nvidia style deals with OAI who are customers. 'Google Finance' is investing in a company. Just so happens that company leases something to Google. Not so bad. Nvidia invests in OAI so that money comes right back as sales <- much more conspicuous, looks like 'vendor financing'.

coliveira 4mo ago

This, along with many other recent deals, shows that there is no real competition between these mega companies. They're at this point only orchestrating the market (or should I say scheming) to build an oligopoly and move as much resources and money to the hands their little group through circular deals.

shitlord 4mo ago

When the music stops, this type of trade simply stops being profitable. It only works because of SpaceX's insane P/E.

0xbadcafebee 4mo ago

When the music stops, all the AI companies fall, except Google. Google remains the world's largest advertiser and a cloud provider. They actually make money, own their own hardware, etc. They can survive a stock market bust and still come out victorious, because they still have a product people want to buy (ads). The rest don't.

_heimdall 4mo ago

Given all the rules changes related to IPOs that also just went I to effect, I can only assume their hope is that the public is holding the bag when the music stops and that they think it is going to happen quick.

podgorniy 4mo ago

> What happens when the music stops? "To big to fail" + money printing going brr-r-r-r When these companies get in to the index and into the pensions, their share price will become a political problem.