4 ms·

My understanding is that it's not about the money itself but the model: - you fund a new company and sign long terms contracts with it - this new company uses

by vb-8448 3mo ago

My understanding is that it's not about the money itself but the model: - you fund a new company and sign long terms contracts with it - this new company uses the money you gave it and a lot of debt (backed by long term contracts) to build datacenters and buy a lot of GPU - your figures look great What happens when they run out of debt or funds? If they reach some kind of profitability it's not a big deal, but if not ... EDIT Forget to mention the buyback of unused capacity problem: what happens to your figures when you have to buy back tons of unused GPUs?

marcosdumay 3mo ago
Yes, circular financing is not by itself a problem. It being that size, lasting for that long, and the total lack of viable products created by it are the problem. Financing only adds leverage, that makes every loss or profit larger.
philipallstar 3mo ago
> If they reach some kind of profitability it's not a big deal, but if not ... What is the end of this sentence?
- InsideOutSanta 3mo ago
  ... then it is a big deal.
  - philipallstar 3mo ago
    Okay, but why? What's the actual thing that will happen?
    - InsideOutSanta 3mo ago
      They made huge investment commitments based on planned revenue. They'll go bankrupt (and tear much of the economy down, given how tied up everyone is in them) if they can't keep raising money to pay for these commitments or turn huge profits.
      - aswegs8 3mo ago
        But will they? How greatly are they leveraged? Even if the economics don't work out anymore, they'll be able to sell capacity, pivot, etc. without causing an implosion.
        InsideOutSanta 3mo ago
        > But will they? Yes. > pivot Unless they pivot to literally turning shit into gold, it's going to be a hard no. Realistically, they'll be bailed out by the government. That's what will happen. Because China can't win.
- 14113 3mo ago
  There are two types of people. Those who can extrapolate from incomplete data, and
  - taneq 3mo ago
    …those who understand binary? ;)
brookst 3mo ago
This is not remotely new. When I worked at Intel ~20 years ago, Intel Capital invested in startups that would buy Intel hardware. Some of them succeeded, some did not. But "invest in companies that may grow your own TAM" is an ancient strategy. Sometimes it works, sometimes it doesn't (like any strategy). I'm not disagreeing with you, just saying it's business as usual.
- georgemcbay 3mo ago
  I don't think its really the novelty of the situation that has people worried, its the scale of it and how that scale impacts the speed at which billions of dollars of market value could poof away when/if the music stops.
  - Lerc 3mo ago
    I don't think it is a Novelty to people in the sector but it is a novelty to people hearing about it from a YouTube video. People have always had difficulty understanding large scales. I don't feel that I have the expertise to analyse business structures like these accurately and impartially, yet I am under the impression that I have a better understanding than many who confidently talk about it and preach the end is nigh. Even if the end is,in fact, nigh. It will not render their reasoning sound. They will have been right more by coincidence than judgement.
    - Grombobulous 3mo ago
      I think a whole lot of people understand quite well the difference in scale in this era compared to past eras of tech industry investment. Webvan, Pets.com, eToys.com, Kozmo.com…all these dot com busts maxed out at less than 0.3 billion dollars in investment/IPO scale before they went under. A good amount of these share similarities with the AI bubble with a lot of them promising to be the e-commerce infrastructure of the future with “unlimited potential” as brick and mortar purchases were all predicted to move online. Webvan was going to be the automated warehouse of the future, for example. Even the successful giant unicorns look minuscule in comparison. YouTube’s total investment was under $12 million before Google bought it for $1.65 billion, which looks like peanuts compared to these Hertz rent-a-server companies. SoftBank dumping $8 billion into Uber looks positively quaint by comparison.
vasco 3mo ago
It's not circular! And if it is, it's not a problem! And if it's a problem, it doesn't affect me!
- roenxi 3mo ago
  Those are 3 thresholds that a situation typically has to meet before people get upset about something. Arguably the 3rd one is not great, but the other two are just obvious and basic requirements. In this case even that last one is fine, the financial system is set up so that, in theory, other people losing money doing something stupid is a problem firewalled to just them.
  - emil-lp 3mo ago
    Well, in this case, it's your pension.
    - roenxi 3mo ago
      It isn't my pension, and if it was my pension the major issue would be that I was relying on people I think are untrustable with money to fund my retirement. That is one of those ideas so strategically bad that no tactical success or failure matters. I personally wouldn't choose to let more than a fraction of my money get pushed into that vortex. It looks like a disaster waiting to happen (hopefully I'm wrong and everyone goes home happy). As a rule of thumb in life, if someone is managing your money then you should by and large agree with their judgement of the markets.
  - drawfloat 3mo ago
    It’s beyond naive to think this falling apart will not hit the jobs and finances of ordinary people who never touched ai investment.
CrimsonRain 3mo ago
If you think it's a problem, short NV or buy competitors who are not doing this or don't buy their share at all. If you're right, they'll get burned soon enough and it's none of your business!
- KumaBear 3mo ago
  If it goes bust who bails them industry out?
  - Muromec 3mo ago
    Somebody should go in jail big time if it has be bailed out
    - trinsic2 3mo ago
      We bailed out the banks during the housing crisis and nobody went to jail. And look at where we are at now? In 20 years we are going to have smart cities run by tech barons where we are all serfs
      - Muromec 3mo ago
        Smart cities with tech barons won't ever happen for a lot of reasons, mainly because the government always wins. Tech bros don't have the political and military means to sovereignty . Dictatorship, civil war, corruption with a side dish of genocidal tendencies -- that's on the menu okay. Besides, I don't think serfom has to do anything with it, as you have to keep people in, while the current agenda is all about keeping people out.
  - CrimsonRain 3mo ago
    Nobody should do that. Let them burn including the investors who allowed this.
- boesboes 3mo ago
  Heavy bags huh?
aurareturn 3mo ago
- you fund a new company and sign long terms contracts with it - this new company uses the money you gave it and a lot of debt (backed by long term contracts) to build datacenters and buy a lot of GPU - your figures look great Coreweave and Nebius think this is a great business model. Their lenders also think this can work. It's not the fault of Nvidia. If their business model thinks they can make a profit doing it this way, why stop them? The core problem here seems to be that people think your supplier having an equity stake in your company is wrong or risky.
- SecretDreams 3mo ago
  > The core problem here seems to be that people think your supplier having an equity stake in your company is wrong or risky. If these were all private entities, I think it'd be okay. But they're public entities and they're using the pittance of investment as a force multiplier on their stock price, which they're then regularly using to raise capital. A lot of dumb money in retail investors (as well as corporate) are a big reason this valuations bubble is occuring - which is really the elephant in the room. It's not that the tech isn't real. It's that the valuations behind it have already priced in maybe a decade of profit that hasn't come close to materializing for the LLM vendors; although, the shovel sellers and makers are doing phenomenal - and they have a vested interest to keep the party going with many sweetheart financing/equity deals.
  - aurareturn 3mo ago
    The actual money is coming from big tech profits, debt, and rapidly growing AI revenue (Anthropic growing from $9b ARR to $60b+ ARR in a few months). A very small percentage is coming from Nvidia. And before someone tells me AI demand is fake and circular, my company is spending thousands on Anthropic a month, up from $0 in 2025. And no, we're not getting scammed by Anthropic or tokenmaxxing for no reason. We are getting value. At minimum, my company is not part of this circular thing.
    - uncivilized 3mo ago
      What value?

by vb-8448 3mo ago

marcosdumay 3mo ago

Yes, circular financing is not by itself a problem. It being that size, lasting for that long, and the total lack of viable products created by it are the problem. Financing only adds leverage, that makes every loss or profit larger.

philipallstar 3mo ago

> If they reach some kind of profitability it's not a big deal, but if not ... What is the end of this sentence?

InsideOutSanta 3mo ago
... then it is a big deal.
- philipallstar 3mo ago
  Okay, but why? What's the actual thing that will happen?
  - InsideOutSanta 3mo ago
    They made huge investment commitments based on planned revenue. They'll go bankrupt (and tear much of the economy down, given how tied up everyone is in them) if they can't keep raising money to pay for these commitments or turn huge profits.
    - aswegs8 3mo ago
      But will they? How greatly are they leveraged? Even if the economics don't work out anymore, they'll be able to sell capacity, pivot, etc. without causing an implosion.
      - InsideOutSanta 3mo ago
        > But will they? Yes. > pivot Unless they pivot to literally turning shit into gold, it's going to be a hard no. Realistically, they'll be bailed out by the government. That's what will happen. Because China can't win.
14113 3mo ago
There are two types of people. Those who can extrapolate from incomplete data, and
- taneq 3mo ago
  …those who understand binary? ;)

brookst 3mo ago

This is not remotely new. When I worked at Intel ~20 years ago, Intel Capital invested in startups that would buy Intel hardware. Some of them succeeded, some did not. But "invest in companies that may grow your own TAM" is an ancient strategy. Sometimes it works, sometimes it doesn't (like any strategy). I'm not disagreeing with you, just saying it's business as usual.

georgemcbay 3mo ago
I don't think its really the novelty of the situation that has people worried, its the scale of it and how that scale impacts the speed at which billions of dollars of market value could poof away when/if the music stops.
- Lerc 3mo ago
  I don't think it is a Novelty to people in the sector but it is a novelty to people hearing about it from a YouTube video. People have always had difficulty understanding large scales. I don't feel that I have the expertise to analyse business structures like these accurately and impartially, yet I am under the impression that I have a better understanding than many who confidently talk about it and preach the end is nigh. Even if the end is,in fact, nigh. It will not render their reasoning sound. They will have been right more by coincidence than judgement.
  - Grombobulous 3mo ago
    I think a whole lot of people understand quite well the difference in scale in this era compared to past eras of tech industry investment. Webvan, Pets.com, eToys.com, Kozmo.com…all these dot com busts maxed out at less than 0.3 billion dollars in investment/IPO scale before they went under. A good amount of these share similarities with the AI bubble with a lot of them promising to be the e-commerce infrastructure of the future with “unlimited potential” as brick and mortar purchases were all predicted to move online. Webvan was going to be the automated warehouse of the future, for example. Even the successful giant unicorns look minuscule in comparison. YouTube’s total investment was under $12 million before Google bought it for $1.65 billion, which looks like peanuts compared to these Hertz rent-a-server companies. SoftBank dumping $8 billion into Uber looks positively quaint by comparison.

vasco 3mo ago

It's not circular! And if it is, it's not a problem! And if it's a problem, it doesn't affect me!

roenxi 3mo ago
Those are 3 thresholds that a situation typically has to meet before people get upset about something. Arguably the 3rd one is not great, but the other two are just obvious and basic requirements. In this case even that last one is fine, the financial system is set up so that, in theory, other people losing money doing something stupid is a problem firewalled to just them.
- emil-lp 3mo ago
  Well, in this case, it's your pension.
  - roenxi 3mo ago
    It isn't my pension, and if it was my pension the major issue would be that I was relying on people I think are untrustable with money to fund my retirement. That is one of those ideas so strategically bad that no tactical success or failure matters. I personally wouldn't choose to let more than a fraction of my money get pushed into that vortex. It looks like a disaster waiting to happen (hopefully I'm wrong and everyone goes home happy). As a rule of thumb in life, if someone is managing your money then you should by and large agree with their judgement of the markets.
- drawfloat 3mo ago
  It’s beyond naive to think this falling apart will not hit the jobs and finances of ordinary people who never touched ai investment.

CrimsonRain 3mo ago

If you think it's a problem, short NV or buy competitors who are not doing this or don't buy their share at all. If you're right, they'll get burned soon enough and it's none of your business!

KumaBear 3mo ago
If it goes bust who bails them industry out?
- Muromec 3mo ago
  Somebody should go in jail big time if it has be bailed out
  - trinsic2 3mo ago
    We bailed out the banks during the housing crisis and nobody went to jail. And look at where we are at now? In 20 years we are going to have smart cities run by tech barons where we are all serfs
    - Muromec 3mo ago
      Smart cities with tech barons won't ever happen for a lot of reasons, mainly because the government always wins. Tech bros don't have the political and military means to sovereignty . Dictatorship, civil war, corruption with a side dish of genocidal tendencies -- that's on the menu okay. Besides, I don't think serfom has to do anything with it, as you have to keep people in, while the current agenda is all about keeping people out.
- CrimsonRain 3mo ago
  Nobody should do that. Let them burn including the investors who allowed this.
boesboes 3mo ago
Heavy bags huh?

aurareturn 3mo ago

- you fund a new company and sign long terms contracts with it - this new company uses the money you gave it and a lot of debt (backed by long term contracts) to build datacenters and buy a lot of GPU - your figures look great Coreweave and Nebius think this is a great business model. Their lenders also think this can work. It's not the fault of Nvidia. If their business model thinks they can make a profit doing it this way, why stop them? The core problem here seems to be that people think your supplier having an equity stake in your company is wrong or risky.

SecretDreams 3mo ago
> The core problem here seems to be that people think your supplier having an equity stake in your company is wrong or risky. If these were all private entities, I think it'd be okay. But they're public entities and they're using the pittance of investment as a force multiplier on their stock price, which they're then regularly using to raise capital. A lot of dumb money in retail investors (as well as corporate) are a big reason this valuations bubble is occuring - which is really the elephant in the room. It's not that the tech isn't real. It's that the valuations behind it have already priced in maybe a decade of profit that hasn't come close to materializing for the LLM vendors; although, the shovel sellers and makers are doing phenomenal - and they have a vested interest to keep the party going with many sweetheart financing/equity deals.
- aurareturn 3mo ago
  The actual money is coming from big tech profits, debt, and rapidly growing AI revenue (Anthropic growing from $9b ARR to $60b+ ARR in a few months). A very small percentage is coming from Nvidia. And before someone tells me AI demand is fake and circular, my company is spending thousands on Anthropic a month, up from $0 in 2025. And no, we're not getting scammed by Anthropic or tokenmaxxing for no reason. We are getting value. At minimum, my company is not part of this circular thing.
  - uncivilized 3mo ago
    What value?