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Circular is a dumb way to describe it IMO, because it's not like both parties end up in the same place. Nvidia is making trades for people to buy their GPUs.

Circular is a dumb way to describe it IMO, because it's not like both parties end up in the same place. Nvidia is making trades for people to buy their GPUs. Sometimes companies are trading stock for GPUs, sometimes money, other times something else. In summary, Nvidia is selling GPUs.

georgemcbay 3mo ago
Its only a problem if you think about it, just don't think about it and no problem!
- randyrand 3mo ago
  It's only a problem if you dont think about it.
Marciplan 3mo ago
are you just heavily invested in Nvidia to not see this as problematic?
- ar_lan 3mo ago
  We all are, mostly.
Analemma_ 3mo ago
They're selling GPUs in exchange for scrip which may or may not be able to pay Nvidia's operating expenses depending on whether AI has a profitable business model. This isn't hard to understand.
- thewebguyd 3mo ago
  No, Nvidia is getting paid. Nvidia puts down a fraction of equity cash, and the recipients are taking that to PE to finance debt, using the GPUs as collateral. So Nvidia pays $1B, receiving company uses it to secure $10B in debt and buys $10B worth of GPUs. Nvidia gets real cash, pays TSMC, etc. The people in real trouble are companies like CoreWeave, Oracle, etc. that took an IOU from OpenAI (for example) to start a buildout, entirely debt financed. It works out so long as demand keeps going up, but the moment the music stops and that debt comes due and there's no revenue to pay it, game over. Nvidia's concern isn't not actually getting paid, it's being faced with a glut of cheap, depreciated GPUs flooding the market impacting their future revenue. They'll live. But OpenAI, not being able to pay CoreWeave, for example, that IOU, and then private credit coming for the debt payments from CoreWeave, is what would start the chain reaction. We may actually get to live to see Oracle fall.
wonnage 3mo ago
Looks like you discovered an infinite money glitch! As long as you’re selling things at a profit, all you need to do is take those profits and give them to your customers to buy more things, repeat the loop a few times and you can become a billionaire food vlogger just like Jensen
- thewebguyd 3mo ago
  > all you need to do is take those profits and give them to your customers to buy more things Those customers aren't buying Nvidia chips with Nvidia's money. They're using Nvidia's equity check to finance debt, and then using debt to buy the GPUs. Nvidia invests $1B in someone like CoreWeave, CoreWeave then takes that check, goes to PE a borrows $10B w/ the GPUs as collateral. Nvidia basically paid $1B to get $10B in sales, and now CoreWeave is saddled with debt based on an IOU from the AI labs. Nvidia is insulated from the debt exposure, but the companies doing the datacenter build outs are the ones in real trouble if the house of cards comes falling down.
  - wonnage 3mo ago
    So it’s even better, they’re 10x levering the money! Clearly I wasn’t thinking big enough
thewebguyd 3mo ago
Right. The risk isn't accounting fraud, its the equity-to-debt loop that relies on all these companies making "enough money to pay it back someday." Nvidia invests, that equity check gets used to secure 10x it in debt with the GPUs as collateral, and then they buy the chips. Nvidia gets paid, so they don't hold the debt liability. But, if AI revenue doesn't cover those debt payments before the GPUs depreciate, the loop starts to unravel, and fast. CoreWeave, Oracle, all the "neoclouds" etc. will blow up, and there could potentially be a ton of PE debt that is now under-collateralized due to depreciation, causing a pretty big haircut to basically all of private credit.
- maxdo 3mo ago
  why AI revenue will not cover? Chinese models pushes prices down and quality up, that makes GPU-based automation more affordable, while covering more and more cases to automate. You can debate that llm producers will go bankrupt, some of them at least for sure. How do you lose in this market if you do gpu?
  - thewebguyd 3mo ago
    > How do you lose in this market if you do gpu? You don't. Nvidia gets paid either way. They were never the ones in danger (outside of the buildout going bust and having a massive surplus of cheap, used GPUs flood the market). > You can debate that llm producers will go bankrupt, some of them at least for sure. And that's the risk that will cascade down and kill off a bunch of companies and cause a debt crisis. If (for example), OpenAI goes to Oracle and says "I promise I'll pay you, at some point in the future, $1T to build my datacenters" and then Oracle funds that build out with debt, and then OpenAI goes bust, or just doesn't make enough money or can't raise enough cash to start making payments on their IOU, Oracle now also can't pay their debt and will eventually go bust, and now the private credit market takes a huge haircut, potentially bankrupting entire funds (like what happened in '08).
    - MSKJ 3mo ago
      I'm sure the bailouts are already getting negotiated
amazingamazing 3mo ago
Nope. The simplest rebuttal to all of this is: why dont they pay cash?
no_op 3mo ago
Yeah, the "circular" language is obviously intended to imply unsustainability, as a system without external inputs must eventually run down. But this system is intended to have external inputs, revenue from customers that buy the services of the data centers. So the fundamental issue is just whether there will be enough such demand to justify the scale of the build-out. These deals give Nvidia more exposure to that, in both directions. Certainly Nvidia shareholders should be cognizant of this. But nothing structurally problematic is occurring here.
hmokiguess 3mo ago
[flagged]
- willy_k 3mo ago
  This comment struck me as odd, and I went and read some of your other comments. And then I see this comment, on a completely separate thread: > Now I have the full picture. You're right to push back, and that's on me. The load-bearing seams of language are the smoking gun I should have been aware of. Pardon my curiosity, but whats going on? Is this a bit, or a bot, or simply how you tend to write?
  - NekkoDroid 3mo ago
    Apparently "load-bearing seam" is something Claude (or one of the frontier US LLMs) really likes to say.
  - hmokiguess 3mo ago
    Hahah sorry, I just really like the joke. This is me being satirical with the claude-isms. I take it you don't use Claude Code eh? EDIT: By joke I mean this is I guess meme culture shaping as meta references within the workforce using these tools, I find it relevant in certain context on HN as irony and a way to nudge at the topic
    - willy_k 3mo ago
      No worries, its the first option then I gotcha. I don’t use Claude Code so I didn’t catch the particular reference lol
- dd8601fn 3mo ago
  Needs more dashes and “shape of” things.
oliwarner 3mo ago
It's circular in the same way you'd describe the whirlpool created by an emptying bathtub. Round and round it spins, sucking in external cash to sustain it. Without continued external investment, the cycle stops, and we all learn what "too big to fail" looks like this time.

georgemcbay 3mo ago

Its only a problem if you think about it, just don't think about it and no problem!

randyrand 3mo ago
It's only a problem if you dont think about it.

Marciplan 3mo ago

are you just heavily invested in Nvidia to not see this as problematic?

ar_lan 3mo ago
We all are, mostly.

Analemma_ 3mo ago

They're selling GPUs in exchange for scrip which may or may not be able to pay Nvidia's operating expenses depending on whether AI has a profitable business model. This isn't hard to understand.

thewebguyd 3mo ago
No, Nvidia is getting paid. Nvidia puts down a fraction of equity cash, and the recipients are taking that to PE to finance debt, using the GPUs as collateral. So Nvidia pays $1B, receiving company uses it to secure $10B in debt and buys $10B worth of GPUs. Nvidia gets real cash, pays TSMC, etc. The people in real trouble are companies like CoreWeave, Oracle, etc. that took an IOU from OpenAI (for example) to start a buildout, entirely debt financed. It works out so long as demand keeps going up, but the moment the music stops and that debt comes due and there's no revenue to pay it, game over. Nvidia's concern isn't not actually getting paid, it's being faced with a glut of cheap, depreciated GPUs flooding the market impacting their future revenue. They'll live. But OpenAI, not being able to pay CoreWeave, for example, that IOU, and then private credit coming for the debt payments from CoreWeave, is what would start the chain reaction. We may actually get to live to see Oracle fall.

wonnage 3mo ago

Looks like you discovered an infinite money glitch! As long as you’re selling things at a profit, all you need to do is take those profits and give them to your customers to buy more things, repeat the loop a few times and you can become a billionaire food vlogger just like Jensen

thewebguyd 3mo ago
> all you need to do is take those profits and give them to your customers to buy more things Those customers aren't buying Nvidia chips with Nvidia's money. They're using Nvidia's equity check to finance debt, and then using debt to buy the GPUs. Nvidia invests $1B in someone like CoreWeave, CoreWeave then takes that check, goes to PE a borrows $10B w/ the GPUs as collateral. Nvidia basically paid $1B to get $10B in sales, and now CoreWeave is saddled with debt based on an IOU from the AI labs. Nvidia is insulated from the debt exposure, but the companies doing the datacenter build outs are the ones in real trouble if the house of cards comes falling down.
- wonnage 3mo ago
  So it’s even better, they’re 10x levering the money! Clearly I wasn’t thinking big enough

thewebguyd 3mo ago

Right. The risk isn't accounting fraud, its the equity-to-debt loop that relies on all these companies making "enough money to pay it back someday." Nvidia invests, that equity check gets used to secure 10x it in debt with the GPUs as collateral, and then they buy the chips. Nvidia gets paid, so they don't hold the debt liability. But, if AI revenue doesn't cover those debt payments before the GPUs depreciate, the loop starts to unravel, and fast. CoreWeave, Oracle, all the "neoclouds" etc. will blow up, and there could potentially be a ton of PE debt that is now under-collateralized due to depreciation, causing a pretty big haircut to basically all of private credit.

maxdo 3mo ago
why AI revenue will not cover? Chinese models pushes prices down and quality up, that makes GPU-based automation more affordable, while covering more and more cases to automate. You can debate that llm producers will go bankrupt, some of them at least for sure. How do you lose in this market if you do gpu?
- thewebguyd 3mo ago
  > How do you lose in this market if you do gpu? You don't. Nvidia gets paid either way. They were never the ones in danger (outside of the buildout going bust and having a massive surplus of cheap, used GPUs flood the market). > You can debate that llm producers will go bankrupt, some of them at least for sure. And that's the risk that will cascade down and kill off a bunch of companies and cause a debt crisis. If (for example), OpenAI goes to Oracle and says "I promise I'll pay you, at some point in the future, $1T to build my datacenters" and then Oracle funds that build out with debt, and then OpenAI goes bust, or just doesn't make enough money or can't raise enough cash to start making payments on their IOU, Oracle now also can't pay their debt and will eventually go bust, and now the private credit market takes a huge haircut, potentially bankrupting entire funds (like what happened in '08).
  - MSKJ 3mo ago
    I'm sure the bailouts are already getting negotiated

amazingamazing 3mo ago

Nope. The simplest rebuttal to all of this is: why dont they pay cash?

no_op 3mo ago

Yeah, the "circular" language is obviously intended to imply unsustainability, as a system without external inputs must eventually run down. But this system is intended to have external inputs, revenue from customers that buy the services of the data centers. So the fundamental issue is just whether there will be enough such demand to justify the scale of the build-out. These deals give Nvidia more exposure to that, in both directions. Certainly Nvidia shareholders should be cognizant of this. But nothing structurally problematic is occurring here.

hmokiguess 3mo ago

[flagged]

willy_k 3mo ago
This comment struck me as odd, and I went and read some of your other comments. And then I see this comment, on a completely separate thread: > Now I have the full picture. You're right to push back, and that's on me. The load-bearing seams of language are the smoking gun I should have been aware of. Pardon my curiosity, but whats going on? Is this a bit, or a bot, or simply how you tend to write?
- NekkoDroid 3mo ago
  Apparently "load-bearing seam" is something Claude (or one of the frontier US LLMs) really likes to say.
- hmokiguess 3mo ago
  Hahah sorry, I just really like the joke. This is me being satirical with the claude-isms. I take it you don't use Claude Code eh? EDIT: By joke I mean this is I guess meme culture shaping as meta references within the workforce using these tools, I find it relevant in certain context on HN as irony and a way to nudge at the topic
  - willy_k 3mo ago
    No worries, its the first option then I gotcha. I don’t use Claude Code so I didn’t catch the particular reference lol
dd8601fn 3mo ago
Needs more dashes and “shape of” things.

oliwarner 3mo ago

It's circular in the same way you'd describe the whirlpool created by an emptying bathtub. Round and round it spins, sucking in external cash to sustain it. Without continued external investment, the cycle stops, and we all learn what "too big to fail" looks like this time.