Nvidia invested $2b into CoreWeave for 9% equity stake. CoreWeave is spending $35b in CapEx in 2026. Therefore, Nvidia's investment is only 5.7% of CoreWeave's single year CapEx. The other $32b is coming from other sources that isn't Nvidia. This is hardly circular.
Nvidia invests in Neoclouds because it's a hedge against hyperscalers having too much power, ie designing and prioritizing their own chips, and not fully using Nvidia's rack design. Neoclouds give hyperscalers competition. Neoclouds accept Nvidia investments because it allows them to secure Nvidia chips first, which is a competitive advantage since new Nvidia chips have been as much as ~5-20x more efficient than old Nvidia chips.
Nvidia was planning to directly compete against hyperscalers through DGX Cloud. They cancelled public DGX Cloud access when they found that investing in Neoclouds would accomplish the same goals without having to compete against their biggest customers.
If you're Nvidia, it's smart because Neoclouds that you have a large stake in will deploy your full stack from GPUs to networking to storage racks. They will share valuable usage data back to you so you can design a better next generation. Hyperscalers are likely a lot less cooperative, prefer to use their own designs if possible, and will guard their usage data.
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?
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.
- 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.
> 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.
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.
> my company is spending thousands on Anthropic a month
The problem is that this is simply not enough. They need you to spend tens of thousands, probably closer to hundreds of thousands, before the numbers start making sense.
> At minimum, my company is not part of this circular thing.
You're in the blast radius. And if you don't have a plan for "what if Anthropic hikes the API rates by 10x or worse", you're in the kill zone.
I’m at a very fast growing startup with real revenue and Fable has let us avoid hiring probably 6-10 full time software engineers with full salary and benefits. We’re spending nowhere close to that. I’m the hiring manager and I’m closing the reqs.
So.. great news for Anthropic, I’ll go ahead and let the elephant in the room go unaddressed
> 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.
That's not how that works. Their stock price is not directly correlated with them raising capital since Nvidia has not issued new shares (or sold shares on the open market) since their IPO. Their corporate bond is also not based on, or relies on, the stock price since they must be paid back in cash.
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.
It is. If you're interested in learning more, after the TAM, there is SAM and SOM. SAM is Serviceable Addressable Market, the part of the market that is realistic for you to target with where you are right now with what you've got. Finally, then SOM is Serviceable Obtainable Market. SOM is the number with the budget, competition, and sales, that you realistically think you can get.
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.
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.
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.
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.
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.
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!
To make money on financial markets it's not just about "if" but also "when" ... and even if I think it's problem (which I didn't say) i for sure don't know "when"!
Someone had a model combining shorting with investigative journalism, a while back. They'd short, then release evidence showing that the company was way overvalued, then make their money when the stock price dropped.
> If market followed rational logic, you could pre-calculate which stocks will be what price and never lose money.
The fundamentals are unpredictable, so even a perfectly rational planning (suppose such thing could exist) would lose money sometimes. Not in the long run, but long run doesn't matter if a single wrecked ship can wreck you.
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
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.
What a pathetic, lame reply. The OP demolishes the whole premise and your response is “be that as it may, we’re still traumatized by grifters so it’s not possible AI is the real deal!”
it could also be a real advance, a valuable tool, lead to a bunch of great ideas and products, and still not be a good return on the trillions that have been dumped into it mindlessly.
You're probably just responding to the headline but this person is an AI bull and isn't claiming it's a big deal, she's going into it and explaining it.
People are looking for the AI bear case - so this headline gotta work better. Its not a bad idea haha. More people suspect there is some circular shenanigans but want confirmation -- so maybe this is the best way to lure them in. Come as the bear, stay for the bull.
With just these 2 comments, now I'm really gonna read that article.
The AI tooling I used 12-24 months ago if frozen in time, monetized correctly is probably 100x the capability of what software could do before (And software was already eating the world long before AI). The bull case is that we just invented the 21st century equivalent of the printing press or electricity. And that website is the 19th century equivalent of someone criticizing electricity as a concept because it would be expensive to build power lines.
If anything it's a miracle that the US economy is so efficient that we can just skip all the small talk and bullshit and build out the infrastructure to support AI immediately.
> If anything it's a miracle that the US economy is so efficient that we can just skip all the small talk and bullshit and build out the infrastructure to support AI immediately.
This is a good take. But then it makes you think - China can build a data center cheaper. Their non-chip cost is likely much smaller. So if there is a down-cycle in chip and memory prices and/or the technology-progress slows, whoever can build horizontal capacity has the advantage.
We have been pushing to the frontier very fast. But there will be a lot of efficiencies found. The agentic use-case has some room to run even if models stay static ie inference needs continue to grow. This puts pressure on the edge that US has of pushing frontier at higher costs. This is likely the AI bear scenario.
Just to help me out a little; you're saying "printing press and electricity"
But there were printing presses before movable type, and movable type specifically allowed creation of inexpensive books and newspapers. The printing press itself wasn't all that useful alone.
Electricity (in the form of shocking fish) was used by people thousands of years ago and Volta was fiddling with electricity to make frog legs dance in the 1800s; electricity as an industrial property required a bunch of knowledge and material science to make ... lights and motors. Electricity by itself isn't all that wonderful; a flash in the pan so to speak.
So -- what "electric light" or "movable type" is the product of LLMs? I'm sure there are, but ELI5...
I can think of "Summarize this thing for me" and "Elaborate on this half baked idea" -- and honestly "summarize this for me" is actually quite useful. But I'm not sure it is "electric lights / electric appliances" or "indoor plumbing" degree of revolutionary.
That’s all great but that isn’t a bull case for getting actual money out of it at the levels needed to justify the spending. Our entire stock market (everyone’s retirement) is based on this right now. Not all amazing inventions enrich everyone involved. Sometimes it’s just pgp or the dishwasher. It’s interesting you mention electricity, because that’s what AI feels like to me. It will be important and vital, but you don’t care where it comes from, you just care if it works and nobody really makes a killing from a commodity like electricity. The valuation of these companies is based on AI being something completely different from what it will be because of hysteria. There is no difference between this and the GME meme stocks, it simply got bigger and has now swallowed the whole economy.
That said, I'm aligned with you that I'm not clear who is profiting from it other than oligarchs. I'm also quite certain the valuations are fully in bubble territory, pricing in decades of profit I don't see playing out for the LLM vendors. That said, I think it'll be a bit before it deflates.
Way too many regular tech bros making money/invested in it for a reasonable discussion on the topic on HN, imo.
It sounds like Nvidia is not only supplying GPUs first to neoclouds, it is also supplying them for free if they cannot be resold:
"Furthermore, in the case of CoreWeave, Nvidia has also provided a significant financial backstop against unsold GPU capacity. Under the agreement with an initial value of $6.3 billion, “in instances where [CoreWeave’s] datacenter capacity is not fully utilized by its own customers, NVIDIA is obligated to purchase the residual unsold capacity through April 13, 2032.” In other words, Nvidia is committed to purchasing unsold GPU capacity if CoreWeave is unable to find another buyer. With an initial value of $6.3 billion, there is the potential that the arrangement could become larger over time."
I don't know how Nvidia is handling Coreweave GPU sales revenue in their accounting, but it sounds to me like it should have a pretty big asterisk attached to it. It's more like a consignment arrangement than an actual sale. And it obviously creates a huge incentive for Coreweave to over-order GPUs, since there's no risk (I doubt they're paying cash up front).
From an accounting perspective, this absolutely isn't a consignment agreement.
The sale of the GPUs by Nvidia to CoreWeave is real. CoreWeave pays Nvidia cash and becomes the owner of the asset, so it's properly booked as a sale. If it can't sell capacity, the GPUs are not returned to Nvidia.
CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms. That doesn't change the accounting.
If Nvidia has to purchase unused capacity, it simply becomes an operating expense for Nvidia.
Nvidia's exposure is the $6.3 billion backstop obligation and the equity it holds in CoreWeave.
>CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms.
According to the article, the $6.3B is a floor, not a ceiling. And it's not clear whether CoreWeave is actually paying cash or getting the GPUs on credit. If the full amount is getting booked, it's an accounting loophole that's being exploited. If GM sells Hertz a million cars, but says "Hey, we'll buy these back if you can't rent them," can GM book all those cars as actual revenue? What if Hertz only has to pay 10% up front and the rest in 5 years?
Your GM/Hertz comparison is not applicable here. Under GAAP accounting rules, GM wouldn't be able to book those as sales because it was obligated (or likely) to buy back the asset. Under the rules, this means the transaction gets treated as an operating lease. The cars would stay on GM's balance sheet and the revenue would get recognized over the lease period.
The CoreWeave-Nvidia deal is not the same because Nvidia is not buying back the asset (the GPUs). CoreWeave has title to the chips and if they're worth nothing in 5 years, that's a problem for CoreWeave and its lenders.
What Nvidia obligated itself to was buying compute capacity, which Nvidia would be able to use for its own workloads.
In the GM/Hertz analogy, this is like GM selling Hertz the cars and saying "If you can't find renters for them, we'll rent them from you at market rates, up to $x." Under GAAP accounting rules, GM would book the car sales as revenue, the commitment to rent would be a purchase obligation, and if the rentals ever occurred, GM would incur the costs as an operating expense.
There is a question of whether the CoreWeave-Nvidia deal structure is sensible economically, and how much risk is being created. But there's no GAAP accounting question here. At all.
Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any potential future obligations as "ordinary business costs". But are they really ordinary, or is this potential obligation to buy compute actually much greater than Nvidia's actual future needs?
Great explanation. Maybe another metaphor, it’s like a builder/developer buying land from someone. They own the land, they get the title, it’s theirs.
The land owner saying “hey if you can’t sell all the apartments we’ll buy what’s left” doesn’t in any way negate the sale or revenue accounting as per GAAP etc.
I mean, okay sure, but modify the counterexample they suggested slightly and then it's the same thing.
If GM promised to "rent out" (instead of buy back) the cars it sold to Hertz as a backstop (if not enough customers are renting), then the comparison is apt.
If GM sold cars to Hertz and then agreed to rent them from Hertz if Hertz was unable to rent them, it would not be consignment. It would be a sale and then purchase commitment, with the cost of the rentals taken as an operating expense.
Is the CoreWeave-Nvidia arrangement "good"? Time will tell. But there's no accounting issue here and even non-accountants can educate themselves on the subject because the least effective way to criticize these deals is to make accounting arguments that don't align to actual accounting principles.
This seems like a really narrow interpretation of what's going on. Is there any room to doubt/discuss whether GAAP rules could be improved? Or why the deal has been structured this way?
Why shouldn't we look through this arrangement? NVIDIA isn't in the business of purchasing outsourced GPU time. They could make better use of unused GPUs by repurchasing them for resale to another customer. If they're not doing that, it already seems likely that they specifically did this to guarantee that the revenue could be recognised.
Sure, NVIDIA's risk exposure could (legally) sit on their books without being recognised until it's already too late. That doesn't mean we shouldn't scrutinize them.
> Is there any room to doubt/discuss whether GAAP rules could be improved?
Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.
CoreWeave is buying chips from Nvidia, paying Nvidia full price, and taking title to them. Nvidia has no right to take them back. It instead has a potential obligation, subject to various conditions, to purchase a separate service (compute) from CoreWeave.
GAAP rules are updated on a regular basis. If you want different GAAP rules for this type of deal, you at least need enough knowledge about accounting to make a sensible suggestion.
> NVIDIA isn't in the business of purchasing outsourced GPU time.
This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made.
So yes, these types of arrangements should be scrutinized. But to do so intelligently requires a basic grasp of accounting rules and the business models.
I'm not the commenter claiming that this currently violates GAAP - that's someone else.
To summarise my opinion, subjectively it seems like a better distinction could be made in GAAP to look through this agreement and others like it. (Hypothetically if Hertz agreed to rent back rather than repurchase, like mentioned in a previous comment, that would also be suspect). But I'm not the one to propose what the preconditions would be.
> Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.
It can be legal and still be subterfuge. Everyone involved in the deal has a clear incentive to ensure Coreweave gets to recognise revenue, and gets to show growth on paper. It's the same reason why SoftBank paying OpenAI $800mln for services in 2025 stinks a bit - they don't need the services but the deal goes ahead anyway.
> This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made.
Sorry - you're entirely correct here. Though remember we're talking about a scenario where Coreweave aren't able to sell their capacity. If there's such a dramatic hole in demand, who are NVIDIA selling their compute to? This repo agreement won't give NVIDIA capacity that they need in the 90% of cases but will force them to purchase capacity they won't need in the 10%.
> If there's such a dramatic hole in demand, who are NVIDIA selling their compute to?
NVIDIA itself is also training foundation models (and open-sourcing them). If there is excess compute available, NVIDIA can increase the scale of such models.
> To summarise my opinion, subjectively it seems like a better distinction could be made in GAAP to look through this agreement and others like it.
There's two things here: accounting and disclosure.
The accounting, which is what GAAP deals with, really doesn't seem problematic. CoreWeave is giving Nvidia cash for the chips and taking title to them. There's no associated repurchase right or obligation. So treating this as a sale and booking the revenue is the most sensible accounting approach. Trying to make it into something it's clearly not because it makes some people feel better isn't sensible.
I think the more important discussion is around disclosure: how much information Nvidia should be required to provide about its relationships with companies like CoreWeave, and where and when. Right now, we have to paint the picture based on multiple disclosures. We know about the equity stake through a 13F. The backstop was in an 8-K that was filed two years after the agreement was signed. The equity stake is not high enough that most of the rules around "related party" disclosures come into play.
I suppose you could make the argument that the market obviously sees the circularity here despite the patchwork disclosures that apply, so the circularity is ostensibly being priced in to the stock prices, debt, etc. But there's a legitimate argument that the market would be better served if disclosure was earlier and cleaner.
Even so, none of this would prevent Nvidia from engaging in these types of transactions because there's nothing inherently illegal about them.
>CoreWeave is buying chips from Nvidia, paying Nvidia full price
I'm not sure this is the case. They are agreeing to pay them some price, it's not clear whether they are getting them for cash or credit but I strongly suspect it's on credit. That doesn't change the GAAP compliance, does it? As I said before, I think they are exploiting an accounting loophole, regardless of whether it is strictly compliant.
anyone can isolate one number to fit their bias. if you look at the wider financing in the industry and the context of multiple AI deals in the billions without any cold hard cash flow or reasoning it kinda makes sense
But we're seeing Anthropic add $15b ARR every month. They're adding 0.34 Salesforce every single month! In 3 months, they add one Salesforce business.
How are we still saying there is no outside money flowing in? Demand is so great that no one has any extra capacity.
And clearly, the more compute we have, the better the results. AI intelligence has not hit a ceiling yet. More compute means more training, more inference, more thinking, more verification, more multi-agent work.
> Why is it a big deal? Nvidia invested $2b into CoreWeave for 9% equity stake.
Depends if they actually got the $2b in real money. There's a difference.
It's a big deal if no money was involved. Nothing even entered the company directly. Some deals have structured with Special Purpose Vehicles where money goes to the SPV. The SPV buys GPUs with it (from Nvidia). GPUs is loaned back to the company involved. So this company is stuck with this GPU rental, which may or may not be what they want and not $2b.
This sounds like a bad deal? So Nvidia had to sweeten the deal and promise min utilization on those GPUs by renting it themselves even if they don't need it.
Dumb question, but when the Nebius capacity dashboard says they have around 3 non-preemptible B200s available, does that mean _total_, or is it just how many I myself might be able to rent on demand?
One aspect of the profitability might be the utilization and the pricing a few years down the line for slightly older hardware. Already now it seems like the increased processing you get from newer devices versus the cost difference makes something like an H100 or even A100 significantly less desirable than newer more powerful ones. As an individual, I am happy to be able to get an H200 on demand, but the B200 or B300 can do so much more work with optimized software and models for only modestly more cost that if those become available then from a business perspective you really have to prefer that if you can keep it occupied.
Then with Vera Rubin being like 3 times more effective or whatever, that adds a new layer of gradual obsolescence. So the question is can they keep the pricing up on the older ones a few years down the line enough to fill out the end of those expected payback periods.
The real boogeyman for a neocloud that has heavily invested in expensive Nvidia hardware might be a variation of that beyond Nvidia with startups that have even more dramatic efficiency increases pushing the leading edge even further. For example, if companies like Mythic AI and d-Matrix could somehow rapidly rapidly scale, that would push prices down for all of Nvidia hardware that is significantly less efficient.
I guess so far it doesn't look like any startups with really big efficiency breakthroughs are even close to being able to scale like Nvidia though, especially with the manufacturing and power crunch. But I suspect some of that is because of favoritism and strong arming protecting investments rather than a free and fair ecosystem.
> So the question is can they keep the pricing up on the older ones a few years down the line
They don't expect to keep the prices flat over time, and everyone involved will have planned for this. Prices are highest when they're the newest and greatest (part of why it's valuable for neoclouds to be first in line for new models), and drop year by year as newer GPU models can do equivalent work at lower cost.
You can see a pretty cool dataset of this at [1]; H100 prices where $3/hr in 2023, and dropped linear-ish to $1.75/hr by 2025. And also the notable exception that prices are up this year due to shortage.
hm. I should have written that more precisely, but I thought it was implied/obvious that it would go down to some degree or another. I didn't mean it would literally remain flat. it's a question of how much they drop though, and I don't think they know for sure, because there are new technologies that are really just being held back by manufacturing scale and anti-competition which otherwise could cause larger than anticipated pricing drops for older hardware.
like.. how could you read what I wrote in that comment and conclude that I needed you to explain that the prices would drop?
Why aren’t you talking about how A100 and H100 prices have again spiked and in some cases are higher than 2023! (This chart you posted isn’t fully accurate but even it admits that a100 prices are basically flat since 2024)
Micheal berry doesn’t know shit about GPU pricing or depreciation schedules. A100 demand is very high and easily 2 dollars an hour for reserved right now.
B200 and Vera reubin don’t help much if you don’t benefit from quantization, and that’s exactly my situation and many other AI research orgs situation.
A100s are going to continue making money per hour until 2030. Mark my words.
Circular financing is a dead horse - dont beat it. Instead, what is more interesting could be: Is there a path to these builds becoming economically profitable ? Towards this, some metrics to watch are: 1) ROI per token per dollar 2) Enterprise token budgets. And at what point there is an overbuild relative to the token roi. Alternatively, pressure on token costs due to the open weights models etc.
These questions can't really be answered now because things are moving too fast. That may explain why people are latching on to things they can prove like circular financing even if those arguments are pretty weak.
all money moves in circles, it's just a question of number of stops.
think about stuff like pork barrel funding for aerospace, which props up jobs, which generates funding for political campaigns that perpetuate pork barrel funding.
But how do you even measure the ROI of tokens? I don’t think it’s possible, tokens aren’t fungible. You can spend millions on tokens that don’t contribute one bit to the company revenue, then spend $10 that will actually result in useful things
Tokens are more like oil. There's a million different uses for them. The problem is finding enough them, in good quality, and getting them cheap enough that you don't spend more than they're worth. But they're definitely valuable and useful.
But really it's all more like the railroad panic of the 19th century. Investing too much, too soon, in something that does have promise, but not if you can't pay for it.
> For almost everything else, the answer is no. No one else would pay the real costs to run them. It'll require the whole industry to shrink down massively compared to what we're seeing now - down to a profitable (and much smaller) core.
If there is any data to support this, please share.
This isn't really related to the post, but I need to vent I suppose.
CoreWeave feels very YC-ish. I thought I had an in as a referral for a position there and got interviewed by someone who knew a lot of my peers where I worked. Dude seemed to ask very textbook style questions that you would only learn if you went to a school system for this particular position/subject. I guess I didn't answer to their satisfaction despite knowing more than them on almost everything else. I suppose I'm still bitter seeing as I interviewed with them three times for two different roles. Absolutely wild.
Could it be that someone there just didn’t like or vibe with you?
FWIW, I’ve referred someone 3 times to the same position because I’m very sure he would be a good fit, and I’ve seen his work.
But for trivial reasons (“He doesn’t seem enthusiastic enough” and “the other candidates are better at promoting/selling themselves”) , a couple of managers that are above me in seniority (and directly in the hiring loop) just refuse to pass said person.
In the end he’s stopped applying, and I feel shitty for referring him.
the interview process was rewritten at coreweave by a bunch of hired google engineers to reflect the rest of the industry about a month before they went public. at the time they were prepping for IPO they started to hire from other fortune 500s aggressively, and the whole company went from startup to same shit as the valley over about 6 months. when i interviewed the process was shockingly simple, like literally tell me how to fetch json in go, and by the time i left it was 6 rounds targeted to take two months.
Might be a blessing in disguise that these companies can't roll out datacenters as quick as they want (due to financing, power issues, permit delays or whatever).
That puts a cap on surplus (potentially unused?) datacenter capacity that's around by the time the AI bubble pops.
There is no AI bubble. The underlying fundamentals do in fact line up with the market. The faster you realize this will never pop, the faster you realize that you too can make money in the biggest gold rush in human history.
The faster you realize this will never pop, the faster you realize that you too can make money in the biggest gold rush in human history.
Hey, yeah, quick question. How did the historical literal "gold rushes" end?
Gold worth tens of billions of today's US dollars was recovered, which led to great wealth for a few, though many who participated in the California gold rush earned little more than they had started with.
The human and environmental costs of the Gold Rush were substantial. Native Americans, dependent on traditional hunting, gathering and agriculture, became the victims of starvation and disease, as gravel, silt and toxic chemicals from prospecting operations killed fish and destroyed habitats.[0]
So you're saying a select few will become fabulously wealthy while most will gain nothing, and in exchange we'll destroy the environment and kill many more people through side effects?
I don’t know if the circular financing is a problem. NVIDIA is the best my name in town, any company has to spend on NVIDIA assets for their compute. Now that makes NVIDIA rich and so they don’t know what to do with their money. They are just propping up companies they find interesting
Does AI end up being much closer to a Crypto style result late 2010’s-early 2020’s) or is it closer to the Web style late 90s landscape?
Both had somewhat similar early outcomes for a lot of the initial front runners with some experiencing legal issues and others collapsing due to sketchy finances. Crypto ended up not being as earth shattering as most believers wanted it to be but there are still many billionaires and large companies that exist and continue to churn profit. Will a similar fate exist for AI companies? A few large winners, lots of large/medium/small losers (with some taking the legal and financial hits) but a decently large industry (not earth shattering) survives and establishes to simply be a small piece of the greater economy rather than the primary driver as most AI truthers believe?
LLMs are actually useful, people are willing to pay for access to them, and they do genuinely enable things that were unrealistic or impossible before. The advances in image, video, and sound models since 2020 are also striking but likely won't be as transformative as LLMs.
That being said, I don't think it's unlikely that we'll see a plateauing of progress followed by a strong crash/correction in the market a-la dot com. The Allbirds situation absolutely has echoes of pets.com.
I also feel that commodification is coming for models, training/inference hardware, and software (e.g. CUDA), as it has for nearly everything else useful in tech. So I expect valuations driven by unique advantages here to be eroded over time (Think Sun and SCO after Linux on cheap x86 servers became the norm).
I think it will be like the 90's collapse but bigger. It must be noted that the financial markets have been awash in cash for some time since companies have been making huge profits since the 90's. So the money that will be lost will mostly be that of rich investors and large companies who were sitting on a bunch of capital they didn't know what to do with.
bro if I get a cent for every time the bubble and circular finance guys tell me it's all fraud and we crash in 3 2 1, I would be richer then going long memory...
I have the same feeling, but after reading this report I believe big hyperscalers will survive the bubble when it pops.
Now I've got the feeling they don't have huge amounts of GPUs sitting in their DCs, but rented for Opex. In case the bubble pops they might get it at discount as CapEx (like Amazon did with dark fiber after the dotcom bubble).
I've said it before, I will say it again: all that circular investment, all the IOUs, all the billions of dollars of money that are floating around in the entire AI web... it will seriously wreck the US economy, the volume is orders of magnitude worse than what caused the 2007ff global financial crisis. But if OpenAI and Anthropic both manage to enter the fray as well and automatically get made part of the NASDAQ and MSCI World like SpaceX already did... yeah, then it will fry the US pension system alive as well.
It looks more similar to the 1929 crash to me, where "too big to fail" blue chip stocks were overinvested and overvalued, and the value adjustments rippled through the rest of the economy. If NVIDIA does get a meaningful value adjustment downwards, it'll probably survive, but it'll impact the S&P500. People will need to sell off other stocks to cover the losses, etc. etc.
That is exactly the point. These circular deals artificially increase the earnings of company and as a result artificially decrease price–earnings ratio.
The amount of coping, seething etc at the fact that Nvidia is hilariously profitable leads to some of the funniest cognitive dissonance I’ve seen on the internet.
The problem is - what happens when the AI bubble bursts for whatever reason, and suddenly NVIDIA has to deal with a lot of its high-margin business going away? With its outsized weight amongst most indices and consequently ETFs, even a small percentage of value correction will wipe out a lot of wealth.
We've seen that with the dot-com bubble in the past, a lot of the "dark fiber" that we use and rely on today was gotten for incredibly cheap after the collapse of debt-fueled customers and, subsequently, the collapse of the ISPs.
That scenario is what I am afraid of repeating, partially because a lot of the market (especially at the tail end, such as datacenter companies investing into buildouts, and consequently construction companies investing in machinery and staff) is fueled by debt and a domino-level collapse can trigger another cascading debt default crisis that can then send off banks into failure.
> It looks more similar to the 1929 crash to me, where "too big to fail" blue chip stocks were overinvested and overvalued, and the value adjustments rippled through the rest of the economy.
Yup. Add to that the decade worth of ZIRP following the 2007ff crash and Covid... all that money has to exit the system again eventually.
Yeah, it's basically creating the illusion of demand and revenue. Lots of fraud in the past relied on companies "investing" into companies which then bought from the investor. I'm not sure to what degree this is happening now, though, and to what degree this is benign.
People are investing because if Nvidia are essentially buying shares with graphics cards then they're motivated to make this stuff work. If the invested in company's share price tanks, Nvidia loses out, and I imagine quite a few people are willing to win or lose alongside Nvidia.
In general for these deals, and the ones with SPVs even more we don’t know. It may be as straightforward as equity for GPUs, but not enough information has been released.
With the rising prices of RAM, I feel these companies owe us money - in particular NVIDIA. I feel that the "free" market is not working when you have de-facto monopolies, as is the case right now. The AI explosion exposed that problem. Why are politicians not doing anything? Too bribed already?
What? You can go out & buy whatever RAM you want. It just requires willingness to pay more than Nvidia & friends. That's how markets are supposed to work.
Manyfacturers aren't artificially restricting supply, they're running fabs full-tilt. You could want them to build more fabs to meet demand. Which they are, but at a more modest rate than what you would want, because those manufacturers have been burned in previous boom-bust cycles. Never mind that fab-construction lead times are measured in years.
And what's stopping you from fabricating & selling RAM? I've read it's very profitable! Oh yeah, it takes many $B to pull a SOTA fab out of the ground.
Vendors price-gouging? Probably. Wouldn't you?
TLDR; it's not a monopoly issue. This is a high-tech specialized market where a ridiculous spike in demand is near-impossible to cater for. You want some new RAM-heavy gadgets? Shell out $, adjust your RAM 'wants', or be patient.
> You can go out & buy whatever RAM you want. It just requires willingness to pay more than Nvidia & friends. That's how markets are supposed to work.
Ram was a commodity and now it's not. Markets are not supposed to decommodidy things because a single company got so big that it could buy half the worlds supply. That's not a normal situation or a healthy market, and people can feel however they want about it. They had a previous good taken from them.
Yandex’s parent holding company was Dutch, and Nebius is now the same. A lot of their employees were effectively transferred between the two. Nebius is basically still just Yandex, just rebranded and legally a different entity.
It’s also by many accounts a bit of a weird company to work for, but they can afford to pay above-market for many roles.
Not too well known, but Yandex very suddenly moved almost all of their employees + families to Israel, and then on to the Netherlands (where they already had an office and a company called "Nebius" to avoid sanctions against Russia) and US.
Certainly looks like they were trying to get out, and were rich enough to actually pull it off (that can't have been cheap). Also they deserve some serious kudos for actually trying to protect them.
I have no clue about the reasoning behind the decision. I'm not associated with the company, just know some employees. The feeling is that many more people were taken along than necessary.
Why is it a big deal?
Nvidia invested $2b into CoreWeave for 9% equity stake. CoreWeave is spending $35b in CapEx in 2026. Therefore, Nvidia's investment is only 5.7% of CoreWeave's single year CapEx. The other $32b is coming from other sources that isn't Nvidia. This is hardly circular.
Nvidia invests in Neoclouds because it's a hedge against hyperscalers having too much power, ie designing and prioritizing their own chips, and not fully using Nvidia's rack design. Neoclouds give hyperscalers competition. Neoclouds accept Nvidia investments because it allows them to secure Nvidia chips first, which is a competitive advantage since new Nvidia chips have been as much as ~5-20x more efficient than old Nvidia chips.
Nvidia was planning to directly compete against hyperscalers through DGX Cloud. They cancelled public DGX Cloud access when they found that investing in Neoclouds would accomplish the same goals without having to compete against their biggest customers.
If you're Nvidia, it's smart because Neoclouds that you have a large stake in will deploy your full stack from GPUs to networking to storage racks. They will share valuable usage data back to you so you can design a better next generation. Hyperscalers are likely a lot less cooperative, prefer to use their own designs if possible, and will guard their usage data.
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?
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.
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.
> Coreweave and Nebius think this is a great business model.
It's irrelevant.
> If their business model thinks they can make a profit doing it this way, why stop them?
I don't think someone needs to stop them, but there are some legit questions that need an answer:
- what happens to all these companies when growth decelerate or stop?
- what happens to nvidia stock when it has to buy back unused gpus?
- what are the risk that a sectorial financial crisis turn into a major economic crisis?
> 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.
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.
> my company is spending thousands on Anthropic a month
The problem is that this is simply not enough. They need you to spend tens of thousands, probably closer to hundreds of thousands, before the numbers start making sense.
> At minimum, my company is not part of this circular thing.
You're in the blast radius. And if you don't have a plan for "what if Anthropic hikes the API rates by 10x or worse", you're in the kill zone.
What value?
I’m at a very fast growing startup with real revenue and Fable has let us avoid hiring probably 6-10 full time software engineers with full salary and benefits. We’re spending nowhere close to that. I’m the hiring manager and I’m closing the reqs.
So.. great news for Anthropic, I’ll go ahead and let the elephant in the room go unaddressed
> 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.
That's not how that works. Their stock price is not directly correlated with them raising capital since Nvidia has not issued new shares (or sold shares on the open market) since their IPO. Their corporate bond is also not based on, or relies on, the stock price since they must be paid back in cash.
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.
For anyone else wondering, TAM seems to be ‘total addressable market’ if my searching is accurate.
It is. If you're interested in learning more, after the TAM, there is SAM and SOM. SAM is Serviceable Addressable Market, the part of the market that is realistic for you to target with where you are right now with what you've got. Finally, then SOM is Serviceable Obtainable Market. SOM is the number with the budget, competition, and sales, that you realistically think you can get.
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.
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.
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.
Why do you all come out of the woodwork with "we've seen this before" when a small issue becomes a massive scale issue?
Who gives a ** if you've seen it before, it's now a large scale issue. Stop trying to downplay it like it's a book you've read the second time.
> If they reach some kind of profitability it's not a big deal, but if not ...
What is the end of this sentence?
There are two types of people. Those who can extrapolate from incomplete data, and
... then it is a big deal.
Okay, but why? What's the actual thing that will happen?
It's not circular!
And if it is, it's not a problem!
And if it's a problem, it doesn't affect me!
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.
It’s beyond naive to think this falling apart will not hit the jobs and finances of ordinary people who never touched ai investment.
Well, in this case, it's your pension.
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.
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!
To make money on financial markets it's not just about "if" but also "when" ... and even if I think it's problem (which I didn't say) i for sure don't know "when"!
Someone had a model combining shorting with investigative journalism, a while back. They'd short, then release evidence showing that the company was way overvalued, then make their money when the stock price dropped.
i think you are talking about hindenburg research center
Markets can remain irrational longer than you can remain solvent.
Market is _never_ rational. If market followed rational logic, you could pre-calculate which stocks will be what price and never lose money.
(Stock) market is, by definition, irrational. If you are scared of solvency, sell and hold money and/or gold.
> If market followed rational logic, you could pre-calculate which stocks will be what price and never lose money.
The fundamentals are unpredictable, so even a perfectly rational planning (suppose such thing could exist) would lose money sometimes. Not in the long run, but long run doesn't matter if a single wrecked ship can wreck you.
"(Stock) market is, by definition, irrational"
I assume this is just your definition?
Is weather irrational, because you cannot calculate it?
Markets and weather are just too complex with too many unknowns to calculate it.
If it goes bust who bails them industry out?
Nobody should do that. Let them burn including the investors who allowed this.
Somebody should go in jail big time if it has be bailed out
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
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.
Heavy bags huh?
idc how market goes. my bag is hold for 15 years.
A crash is just another chance of buying more.
Bear in mind the last big thing from the tech industry was cryptocurrency.
And that was rife with scams, chicanery, and nonexistent investments. As well as needing lots of GPU-filled power hungry data centres.
So I think a lot of people are viewing the AI boom through the same lens.
I don't think the tech industry embraced cryptocurrency.
There are a few outliers like Meta's basket of currency crypto attempt and Sam Altman's World Coin.
Meanwhile, the entire tech industry has embraced LLMs one way or another.
Maybe not, but the cryptocurrency grifters all dressed themselves as tech visionaries.
And tech venture capitalists, Altman and Musk were big boosters of cryptocurrencies.
To an outsider, cryptocurrency cones from the tech industry, despite the fact Apple and Google didn’t bet big on it.
Most of them were outside of the traditional San Francisco/Silicon Valley tech companies.
Most of these were in Asia, New York, 2nd/3rd world countries, etc.
I think any association between cryptocurrencies and AI is a lazy one.
What a pathetic, lame reply. The OP demolishes the whole premise and your response is “be that as it may, we’re still traumatized by grifters so it’s not possible AI is the real deal!”
"the real deal"? this whole framing is black and white.
It can be useful and also be a complete and utter fucking scam the way it's "produced" and sold.
it could also be a real advance, a valuable tool, lead to a bunch of great ideas and products, and still not be a good return on the trillions that have been dumped into it mindlessly.
You're probably just responding to the headline but this person is an AI bull and isn't claiming it's a big deal, she's going into it and explaining it.
It's a bad headline because most of the article isn't about circular financing and it's only 5.7% of anyway.
People are looking for the AI bear case - so this headline gotta work better. Its not a bad idea haha. More people suspect there is some circular shenanigans but want confirmation -- so maybe this is the best way to lure them in. Come as the bear, stay for the bull.
With just these 2 comments, now I'm really gonna read that article.
Can someone even outline the AI bull case? I can’t fathom one at all.
https://isaiprofitable.com/
The only profitable company is the one running the scam.
Do you use it or is this speculation?
The AI tooling I used 12-24 months ago if frozen in time, monetized correctly is probably 100x the capability of what software could do before (And software was already eating the world long before AI). The bull case is that we just invented the 21st century equivalent of the printing press or electricity. And that website is the 19th century equivalent of someone criticizing electricity as a concept because it would be expensive to build power lines.
If anything it's a miracle that the US economy is so efficient that we can just skip all the small talk and bullshit and build out the infrastructure to support AI immediately.
> If anything it's a miracle that the US economy is so efficient that we can just skip all the small talk and bullshit and build out the infrastructure to support AI immediately.
This is a good take. But then it makes you think - China can build a data center cheaper. Their non-chip cost is likely much smaller. So if there is a down-cycle in chip and memory prices and/or the technology-progress slows, whoever can build horizontal capacity has the advantage.
We have been pushing to the frontier very fast. But there will be a lot of efficiencies found. The agentic use-case has some room to run even if models stay static ie inference needs continue to grow. This puts pressure on the edge that US has of pushing frontier at higher costs. This is likely the AI bear scenario.
Just to help me out a little; you're saying "printing press and electricity"
But there were printing presses before movable type, and movable type specifically allowed creation of inexpensive books and newspapers. The printing press itself wasn't all that useful alone.
Electricity (in the form of shocking fish) was used by people thousands of years ago and Volta was fiddling with electricity to make frog legs dance in the 1800s; electricity as an industrial property required a bunch of knowledge and material science to make ... lights and motors. Electricity by itself isn't all that wonderful; a flash in the pan so to speak.
So -- what "electric light" or "movable type" is the product of LLMs? I'm sure there are, but ELI5...
I can think of "Summarize this thing for me" and "Elaborate on this half baked idea" -- and honestly "summarize this for me" is actually quite useful. But I'm not sure it is "electric lights / electric appliances" or "indoor plumbing" degree of revolutionary.
That’s all great but that isn’t a bull case for getting actual money out of it at the levels needed to justify the spending. Our entire stock market (everyone’s retirement) is based on this right now. Not all amazing inventions enrich everyone involved. Sometimes it’s just pgp or the dishwasher. It’s interesting you mention electricity, because that’s what AI feels like to me. It will be important and vital, but you don’t care where it comes from, you just care if it works and nobody really makes a killing from a commodity like electricity. The valuation of these companies is based on AI being something completely different from what it will be because of hysteria. There is no difference between this and the GME meme stocks, it simply got bigger and has now swallowed the whole economy.
One sentence summary of the bull case: Anything you would have paid a human to do, you will pay an AI to do instead.
If we're all out of work then who buys the things AI makes?
All the corporations buying inputs for their products and services and all the people on unemployment.
I use AI all the time and it is great.
That said, I'm aligned with you that I'm not clear who is profiting from it other than oligarchs. I'm also quite certain the valuations are fully in bubble territory, pricing in decades of profit I don't see playing out for the LLM vendors. That said, I think it'll be a bit before it deflates.
Way too many regular tech bros making money/invested in it for a reasonable discussion on the topic on HN, imo.
Just the look and feel and the subscribe fixed position in particular, made me bounce.
It sounds like Nvidia is not only supplying GPUs first to neoclouds, it is also supplying them for free if they cannot be resold:
"Furthermore, in the case of CoreWeave, Nvidia has also provided a significant financial backstop against unsold GPU capacity. Under the agreement with an initial value of $6.3 billion, “in instances where [CoreWeave’s] datacenter capacity is not fully utilized by its own customers, NVIDIA is obligated to purchase the residual unsold capacity through April 13, 2032.” In other words, Nvidia is committed to purchasing unsold GPU capacity if CoreWeave is unable to find another buyer. With an initial value of $6.3 billion, there is the potential that the arrangement could become larger over time."
I don't know how Nvidia is handling Coreweave GPU sales revenue in their accounting, but it sounds to me like it should have a pretty big asterisk attached to it. It's more like a consignment arrangement than an actual sale. And it obviously creates a huge incentive for Coreweave to over-order GPUs, since there's no risk (I doubt they're paying cash up front).
From an accounting perspective, this absolutely isn't a consignment agreement.
The sale of the GPUs by Nvidia to CoreWeave is real. CoreWeave pays Nvidia cash and becomes the owner of the asset, so it's properly booked as a sale. If it can't sell capacity, the GPUs are not returned to Nvidia.
CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms. That doesn't change the accounting.
If Nvidia has to purchase unused capacity, it simply becomes an operating expense for Nvidia.
Nvidia's exposure is the $6.3 billion backstop obligation and the equity it holds in CoreWeave.
>CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms.
According to the article, the $6.3B is a floor, not a ceiling. And it's not clear whether CoreWeave is actually paying cash or getting the GPUs on credit. If the full amount is getting booked, it's an accounting loophole that's being exploited. If GM sells Hertz a million cars, but says "Hey, we'll buy these back if you can't rent them," can GM book all those cars as actual revenue? What if Hertz only has to pay 10% up front and the rest in 5 years?
Your GM/Hertz comparison is not applicable here. Under GAAP accounting rules, GM wouldn't be able to book those as sales because it was obligated (or likely) to buy back the asset. Under the rules, this means the transaction gets treated as an operating lease. The cars would stay on GM's balance sheet and the revenue would get recognized over the lease period.
The CoreWeave-Nvidia deal is not the same because Nvidia is not buying back the asset (the GPUs). CoreWeave has title to the chips and if they're worth nothing in 5 years, that's a problem for CoreWeave and its lenders.
What Nvidia obligated itself to was buying compute capacity, which Nvidia would be able to use for its own workloads.
In the GM/Hertz analogy, this is like GM selling Hertz the cars and saying "If you can't find renters for them, we'll rent them from you at market rates, up to $x." Under GAAP accounting rules, GM would book the car sales as revenue, the commitment to rent would be a purchase obligation, and if the rentals ever occurred, GM would incur the costs as an operating expense.
There is a question of whether the CoreWeave-Nvidia deal structure is sensible economically, and how much risk is being created. But there's no GAAP accounting question here. At all.
Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any potential future obligations as "ordinary business costs". But are they really ordinary, or is this potential obligation to buy compute actually much greater than Nvidia's actual future needs?
Great explanation. Maybe another metaphor, it’s like a builder/developer buying land from someone. They own the land, they get the title, it’s theirs.
The land owner saying “hey if you can’t sell all the apartments we’ll buy what’s left” doesn’t in any way negate the sale or revenue accounting as per GAAP etc.
I mean, okay sure, but modify the counterexample they suggested slightly and then it's the same thing.
If GM promised to "rent out" (instead of buy back) the cars it sold to Hertz as a backstop (if not enough customers are renting), then the comparison is apt.
No, it isn't and this is simple GAAP accounting.
If GM sold cars to Hertz and then agreed to rent them from Hertz if Hertz was unable to rent them, it would not be consignment. It would be a sale and then purchase commitment, with the cost of the rentals taken as an operating expense.
Is the CoreWeave-Nvidia arrangement "good"? Time will tell. But there's no accounting issue here and even non-accountants can educate themselves on the subject because the least effective way to criticize these deals is to make accounting arguments that don't align to actual accounting principles.
> there's no accounting issue here
This seems like a really narrow interpretation of what's going on. Is there any room to doubt/discuss whether GAAP rules could be improved? Or why the deal has been structured this way?
Why shouldn't we look through this arrangement? NVIDIA isn't in the business of purchasing outsourced GPU time. They could make better use of unused GPUs by repurchasing them for resale to another customer. If they're not doing that, it already seems likely that they specifically did this to guarantee that the revenue could be recognised.
Sure, NVIDIA's risk exposure could (legally) sit on their books without being recognised until it's already too late. That doesn't mean we shouldn't scrutinize them.
> Is there any room to doubt/discuss whether GAAP rules could be improved?
Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.
CoreWeave is buying chips from Nvidia, paying Nvidia full price, and taking title to them. Nvidia has no right to take them back. It instead has a potential obligation, subject to various conditions, to purchase a separate service (compute) from CoreWeave.
GAAP rules are updated on a regular basis. If you want different GAAP rules for this type of deal, you at least need enough knowledge about accounting to make a sensible suggestion.
> NVIDIA isn't in the business of purchasing outsourced GPU time.
This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made.
So yes, these types of arrangements should be scrutinized. But to do so intelligently requires a basic grasp of accounting rules and the business models.
I'm not the commenter claiming that this currently violates GAAP - that's someone else.
To summarise my opinion, subjectively it seems like a better distinction could be made in GAAP to look through this agreement and others like it. (Hypothetically if Hertz agreed to rent back rather than repurchase, like mentioned in a previous comment, that would also be suspect). But I'm not the one to propose what the preconditions would be.
> Looking at the structure of the deal and analyzing the risks is perfectly valid. Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.
It can be legal and still be subterfuge. Everyone involved in the deal has a clear incentive to ensure Coreweave gets to recognise revenue, and gets to show growth on paper. It's the same reason why SoftBank paying OpenAI $800mln for services in 2025 stinks a bit - they don't need the services but the deal goes ahead anyway.
> This simply isn't true. Google "DGX Cloud". Nvidia has a real business selling cloud-based compute for training foundation models and running heavy AI workloads, and leasing compute from its hyperscaler chip customers instead of competing with them was a strategic decision Nvidia made.
Sorry - you're entirely correct here. Though remember we're talking about a scenario where Coreweave aren't able to sell their capacity. If there's such a dramatic hole in demand, who are NVIDIA selling their compute to? This repo agreement won't give NVIDIA capacity that they need in the 90% of cases but will force them to purchase capacity they won't need in the 10%.
s/10%/some other probability/
> If there's such a dramatic hole in demand, who are NVIDIA selling their compute to?
NVIDIA itself is also training foundation models (and open-sourcing them). If there is excess compute available, NVIDIA can increase the scale of such models.
> To summarise my opinion, subjectively it seems like a better distinction could be made in GAAP to look through this agreement and others like it.
There's two things here: accounting and disclosure.
The accounting, which is what GAAP deals with, really doesn't seem problematic. CoreWeave is giving Nvidia cash for the chips and taking title to them. There's no associated repurchase right or obligation. So treating this as a sale and booking the revenue is the most sensible accounting approach. Trying to make it into something it's clearly not because it makes some people feel better isn't sensible.
I think the more important discussion is around disclosure: how much information Nvidia should be required to provide about its relationships with companies like CoreWeave, and where and when. Right now, we have to paint the picture based on multiple disclosures. We know about the equity stake through a 13F. The backstop was in an 8-K that was filed two years after the agreement was signed. The equity stake is not high enough that most of the rules around "related party" disclosures come into play.
I suppose you could make the argument that the market obviously sees the circularity here despite the patchwork disclosures that apply, so the circularity is ostensibly being priced in to the stock prices, debt, etc. But there's a legitimate argument that the market would be better served if disclosure was earlier and cleaner.
Even so, none of this would prevent Nvidia from engaging in these types of transactions because there's nothing inherently illegal about them.
>CoreWeave is buying chips from Nvidia, paying Nvidia full price
I'm not sure this is the case. They are agreeing to pay them some price, it's not clear whether they are getting them for cash or credit but I strongly suspect it's on credit. That doesn't change the GAAP compliance, does it? As I said before, I think they are exploiting an accounting loophole, regardless of whether it is strictly compliant.
Billions of dollars sounds like a literal "big deal", but not necessarily "a problem". Worst case for nVidia is they lose 2 billion dollars, NBD.
Simple answers: because it makes for a good headline.
anyone can isolate one number to fit their bias. if you look at the wider financing in the industry and the context of multiple AI deals in the billions without any cold hard cash flow or reasoning it kinda makes sense
But we're seeing Anthropic add $15b ARR every month. They're adding 0.34 Salesforce every single month! In 3 months, they add one Salesforce business.
How are we still saying there is no outside money flowing in? Demand is so great that no one has any extra capacity.
And clearly, the more compute we have, the better the results. AI intelligence has not hit a ceiling yet. More compute means more training, more inference, more thinking, more verification, more multi-agent work.
> Why is it a big deal? Nvidia invested $2b into CoreWeave for 9% equity stake.
Depends if they actually got the $2b in real money. There's a difference.
It's a big deal if no money was involved. Nothing even entered the company directly. Some deals have structured with Special Purpose Vehicles where money goes to the SPV. The SPV buys GPUs with it (from Nvidia). GPUs is loaned back to the company involved. So this company is stuck with this GPU rental, which may or may not be what they want and not $2b.
This sounds like a bad deal? So Nvidia had to sweeten the deal and promise min utilization on those GPUs by renting it themselves even if they don't need it.
So what's income and what's expense here?
That's the problem. It's inflated and messed up.
NVIDIA's $2b into CoreWeave was a stock purchase.
https://investors.coreweave.com/news/news-details/2026/NVIDI...
Dumb question, but when the Nebius capacity dashboard says they have around 3 non-preemptible B200s available, does that mean _total_, or is it just how many I myself might be able to rent on demand?
One aspect of the profitability might be the utilization and the pricing a few years down the line for slightly older hardware. Already now it seems like the increased processing you get from newer devices versus the cost difference makes something like an H100 or even A100 significantly less desirable than newer more powerful ones. As an individual, I am happy to be able to get an H200 on demand, but the B200 or B300 can do so much more work with optimized software and models for only modestly more cost that if those become available then from a business perspective you really have to prefer that if you can keep it occupied.
Then with Vera Rubin being like 3 times more effective or whatever, that adds a new layer of gradual obsolescence. So the question is can they keep the pricing up on the older ones a few years down the line enough to fill out the end of those expected payback periods.
The real boogeyman for a neocloud that has heavily invested in expensive Nvidia hardware might be a variation of that beyond Nvidia with startups that have even more dramatic efficiency increases pushing the leading edge even further. For example, if companies like Mythic AI and d-Matrix could somehow rapidly rapidly scale, that would push prices down for all of Nvidia hardware that is significantly less efficient.
I guess so far it doesn't look like any startups with really big efficiency breakthroughs are even close to being able to scale like Nvidia though, especially with the manufacturing and power crunch. But I suspect some of that is because of favoritism and strong arming protecting investments rather than a free and fair ecosystem.
> So the question is can they keep the pricing up on the older ones a few years down the line
They don't expect to keep the prices flat over time, and everyone involved will have planned for this. Prices are highest when they're the newest and greatest (part of why it's valuable for neoclouds to be first in line for new models), and drop year by year as newer GPU models can do equivalent work at lower cost.
You can see a pretty cool dataset of this at [1]; H100 prices where $3/hr in 2023, and dropped linear-ish to $1.75/hr by 2025. And also the notable exception that prices are up this year due to shortage.
[1] https://semianalysis.com/gpu-pricing-index/
hm. I should have written that more precisely, but I thought it was implied/obvious that it would go down to some degree or another. I didn't mean it would literally remain flat. it's a question of how much they drop though, and I don't think they know for sure, because there are new technologies that are really just being held back by manufacturing scale and anti-competition which otherwise could cause larger than anticipated pricing drops for older hardware. like.. how could you read what I wrote in that comment and conclude that I needed you to explain that the prices would drop?
Why aren’t you talking about how A100 and H100 prices have again spiked and in some cases are higher than 2023! (This chart you posted isn’t fully accurate but even it admits that a100 prices are basically flat since 2024)
Micheal berry doesn’t know shit about GPU pricing or depreciation schedules. A100 demand is very high and easily 2 dollars an hour for reserved right now.
B200 and Vera reubin don’t help much if you don’t benefit from quantization, and that’s exactly my situation and many other AI research orgs situation.
A100s are going to continue making money per hour until 2030. Mark my words.
Circular financing is a dead horse - dont beat it. Instead, what is more interesting could be: Is there a path to these builds becoming economically profitable ? Towards this, some metrics to watch are: 1) ROI per token per dollar 2) Enterprise token budgets. And at what point there is an overbuild relative to the token roi. Alternatively, pressure on token costs due to the open weights models etc.
These questions can't really be answered now because things are moving too fast. That may explain why people are latching on to things they can prove like circular financing even if those arguments are pretty weak.
if the money moves in circles the consequences of new money stopping when predicted profitability falls become a lot more dramatic
all money moves in circles, it's just a question of number of stops.
think about stuff like pork barrel funding for aerospace, which props up jobs, which generates funding for political campaigns that perpetuate pork barrel funding.
But how do you even measure the ROI of tokens? I don’t think it’s possible, tokens aren’t fungible. You can spend millions on tokens that don’t contribute one bit to the company revenue, then spend $10 that will actually result in useful things
Tokens are like bandwidth. The more I see the more I get echos of the dotcom bubble.
Tokens are more like oil. There's a million different uses for them. The problem is finding enough them, in good quality, and getting them cheap enough that you don't spend more than they're worth. But they're definitely valuable and useful.
But really it's all more like the railroad panic of the 19th century. Investing too much, too soon, in something that does have promise, but not if you can't pay for it.
IMO, it can be profitable - but only at the business level. A business with many software devs can pay the steep price for access.
For almost everything else, the answer is no. No one else would pay the real costs to run them.
It'll require the whole industry to shrink down massively compared to what we're seeing now - down to a profitable (and much smaller) core.
> For almost everything else, the answer is no. No one else would pay the real costs to run them. It'll require the whole industry to shrink down massively compared to what we're seeing now - down to a profitable (and much smaller) core.
If there is any data to support this, please share.
This isn't really related to the post, but I need to vent I suppose.
CoreWeave feels very YC-ish. I thought I had an in as a referral for a position there and got interviewed by someone who knew a lot of my peers where I worked. Dude seemed to ask very textbook style questions that you would only learn if you went to a school system for this particular position/subject. I guess I didn't answer to their satisfaction despite knowing more than them on almost everything else. I suppose I'm still bitter seeing as I interviewed with them three times for two different roles. Absolutely wild.
Could it be that someone there just didn’t like or vibe with you?
FWIW, I’ve referred someone 3 times to the same position because I’m very sure he would be a good fit, and I’ve seen his work.
But for trivial reasons (“He doesn’t seem enthusiastic enough” and “the other candidates are better at promoting/selling themselves”) , a couple of managers that are above me in seniority (and directly in the hiring loop) just refuse to pass said person.
In the end he’s stopped applying, and I feel shitty for referring him.
the interview process was rewritten at coreweave by a bunch of hired google engineers to reflect the rest of the industry about a month before they went public. at the time they were prepping for IPO they started to hire from other fortune 500s aggressively, and the whole company went from startup to same shit as the valley over about 6 months. when i interviewed the process was shockingly simple, like literally tell me how to fetch json in go, and by the time i left it was 6 rounds targeted to take two months.
How is what you describe "YC-ish"?
Might be a blessing in disguise that these companies can't roll out datacenters as quick as they want (due to financing, power issues, permit delays or whatever).
That puts a cap on surplus (potentially unused?) datacenter capacity that's around by the time the AI bubble pops.
Blessing in disguise for who?
Any surplus after a pop will be sold for market value and lead to more new cloud provider startups and co-location options.
There is no AI bubble. The underlying fundamentals do in fact line up with the market. The faster you realize this will never pop, the faster you realize that you too can make money in the biggest gold rush in human history.
[0]: https://en.wikipedia.org/wiki/California_gold_rush
"Capitalism is an economic system based on the private ownership of the means of production and its use for the purpose of obtaining profit."
I don’t know if the circular financing is a problem. NVIDIA is the best my name in town, any company has to spend on NVIDIA assets for their compute. Now that makes NVIDIA rich and so they don’t know what to do with their money. They are just propping up companies they find interesting
Does AI end up being much closer to a Crypto style result late 2010’s-early 2020’s) or is it closer to the Web style late 90s landscape? Both had somewhat similar early outcomes for a lot of the initial front runners with some experiencing legal issues and others collapsing due to sketchy finances. Crypto ended up not being as earth shattering as most believers wanted it to be but there are still many billionaires and large companies that exist and continue to churn profit. Will a similar fate exist for AI companies? A few large winners, lots of large/medium/small losers (with some taking the legal and financial hits) but a decently large industry (not earth shattering) survives and establishes to simply be a small piece of the greater economy rather than the primary driver as most AI truthers believe?
If I had to guess, probably Web-style.
LLMs are actually useful, people are willing to pay for access to them, and they do genuinely enable things that were unrealistic or impossible before. The advances in image, video, and sound models since 2020 are also striking but likely won't be as transformative as LLMs.
That being said, I don't think it's unlikely that we'll see a plateauing of progress followed by a strong crash/correction in the market a-la dot com. The Allbirds situation absolutely has echoes of pets.com.
I also feel that commodification is coming for models, training/inference hardware, and software (e.g. CUDA), as it has for nearly everything else useful in tech. So I expect valuations driven by unique advantages here to be eroded over time (Think Sun and SCO after Linux on cheap x86 servers became the norm).
I think it will be like the 90's collapse but bigger. It must be noted that the financial markets have been awash in cash for some time since companies have been making huge profits since the 90's. So the money that will be lost will mostly be that of rich investors and large companies who were sitting on a bunch of capital they didn't know what to do with.
Would this author prefer that Nvidia buy equity using GPUs directly? I don't think it actually counts as circular.
> I don't think it actually counts as circular.
It is. The GPUs go on to be used to get loans to then get more GPUs.
bro if I get a cent for every time the bubble and circular finance guys tell me it's all fraud and we crash in 3 2 1, I would be richer then going long memory...
This bubble bursting will make us all poor
I have the same feeling, but after reading this report I believe big hyperscalers will survive the bubble when it pops.
Now I've got the feeling they don't have huge amounts of GPUs sitting in their DCs, but rented for Opex. In case the bubble pops they might get it at discount as CapEx (like Amazon did with dark fiber after the dotcom bubble).
I've said it before, I will say it again: all that circular investment, all the IOUs, all the billions of dollars of money that are floating around in the entire AI web... it will seriously wreck the US economy, the volume is orders of magnitude worse than what caused the 2007ff global financial crisis. But if OpenAI and Anthropic both manage to enter the fray as well and automatically get made part of the NASDAQ and MSCI World like SpaceX already did... yeah, then it will fry the US pension system alive as well.
>> the volume is orders of magnitude worse than what caused the 2007ff global financial crisis.
Nobody lives in GPUs and what was the ratio of equity/debt for the toxic assets in 2007?
It looks more similar to the 1929 crash to me, where "too big to fail" blue chip stocks were overinvested and overvalued, and the value adjustments rippled through the rest of the economy. If NVIDIA does get a meaningful value adjustment downwards, it'll probably survive, but it'll impact the S&P500. People will need to sell off other stocks to cover the losses, etc. etc.
nvidia's forward p/e is 24. walmart's is 39.
That is exactly the point. These circular deals artificially increase the earnings of company and as a result artificially decrease price–earnings ratio.
The amount of coping, seething etc at the fact that Nvidia is hilariously profitable leads to some of the funniest cognitive dissonance I’ve seen on the internet.
The problem is - what happens when the AI bubble bursts for whatever reason, and suddenly NVIDIA has to deal with a lot of its high-margin business going away? With its outsized weight amongst most indices and consequently ETFs, even a small percentage of value correction will wipe out a lot of wealth.
We've seen that with the dot-com bubble in the past, a lot of the "dark fiber" that we use and rely on today was gotten for incredibly cheap after the collapse of debt-fueled customers and, subsequently, the collapse of the ISPs.
That scenario is what I am afraid of repeating, partially because a lot of the market (especially at the tail end, such as datacenter companies investing into buildouts, and consequently construction companies investing in machinery and staff) is fueled by debt and a domino-level collapse can trigger another cascading debt default crisis that can then send off banks into failure.
That seems to indicate the market is more confident in walmart's earnings than nvidia's.
> It looks more similar to the 1929 crash to me, where "too big to fail" blue chip stocks were overinvested and overvalued, and the value adjustments rippled through the rest of the economy.
Yup. Add to that the decade worth of ZIRP following the 2007ff crash and Covid... all that money has to exit the system again eventually.
All financing is circular. This concern is beyond the pale contrived
Financing is circular because creating a liability for one party (debt) creates an asset for another (the bank) off of which more debt can be secured
A bank / financier sells trust and reassurance. They otherwise invent most money from thin air.
That’s not the point. The issue is that loaning/investing to a client so they can buy from you conflates your investments with your revenue.
It may be fine, or not. It it has been a frequent type of manipulation to obfuscate the real accounting situation.
Yeah, it's basically creating the illusion of demand and revenue. Lots of fraud in the past relied on companies "investing" into companies which then bought from the investor. I'm not sure to what degree this is happening now, though, and to what degree this is benign.
I’m not sure anyone can really say now, the terms and details are too opaque. But, given the history the opacity is itself a red flag.
People are investing because if Nvidia are essentially buying shares with graphics cards then they're motivated to make this stuff work. If the invested in company's share price tanks, Nvidia loses out, and I imagine quite a few people are willing to win or lose alongside Nvidia.
In general for these deals, and the ones with SPVs even more we don’t know. It may be as straightforward as equity for GPUs, but not enough information has been released.
With the rising prices of RAM, I feel these companies owe us money - in particular NVIDIA. I feel that the "free" market is not working when you have de-facto monopolies, as is the case right now. The AI explosion exposed that problem. Why are politicians not doing anything? Too bribed already?
What? You can go out & buy whatever RAM you want. It just requires willingness to pay more than Nvidia & friends. That's how markets are supposed to work.
Manyfacturers aren't artificially restricting supply, they're running fabs full-tilt. You could want them to build more fabs to meet demand. Which they are, but at a more modest rate than what you would want, because those manufacturers have been burned in previous boom-bust cycles. Never mind that fab-construction lead times are measured in years.
And what's stopping you from fabricating & selling RAM? I've read it's very profitable! Oh yeah, it takes many $B to pull a SOTA fab out of the ground.
Vendors price-gouging? Probably. Wouldn't you?
TLDR; it's not a monopoly issue. This is a high-tech specialized market where a ridiculous spike in demand is near-impossible to cater for. You want some new RAM-heavy gadgets? Shell out $, adjust your RAM 'wants', or be patient.
> You can go out & buy whatever RAM you want. It just requires willingness to pay more than Nvidia & friends. That's how markets are supposed to work.
Ram was a commodity and now it's not. Markets are not supposed to decommodidy things because a single company got so big that it could buy half the worlds supply. That's not a normal situation or a healthy market, and people can feel however they want about it. They had a previous good taken from them.
Yandex, not nebius. Surprised how the world gets on kgb again and again, and again
Didn't they move to escape that world?
Yandex’s parent holding company was Dutch, and Nebius is now the same. A lot of their employees were effectively transferred between the two. Nebius is basically still just Yandex, just rebranded and legally a different entity.
It’s also by many accounts a bit of a weird company to work for, but they can afford to pay above-market for many roles.
You can even check their stock ticker...
No one ever leaves the kgb
KGB: entry -- ruble, exit -- two
Not too well known, but Yandex very suddenly moved almost all of their employees + families to Israel, and then on to the Netherlands (where they already had an office and a company called "Nebius" to avoid sanctions against Russia) and US.
Certainly looks like they were trying to get out, and were rich enough to actually pull it off (that can't have been cheap). Also they deserve some serious kudos for actually trying to protect them.
Wasn't it just a business decision? Move and cut ties with Russia or face closure of Yandex EU
I have no clue about the reasoning behind the decision. I'm not associated with the company, just know some employees. The feeling is that many more people were taken along than necessary.
It’s all fine till it’s not. Then it’s a gigantic financial house of cards that comes crashing down.