[HN Gopher] Deep dive on Nvidia circular funding
___________________________________________________________________
Deep dive on Nvidia circular funding
Author : jeanloolz
Score : 233 points
Date : 2025-12-08 18:48 UTC (4 hours ago)
(HTM) web link (philippeoger.com)
(TXT) w3m dump (philippeoger.com)
| Morizero wrote:
| I appreciate the disclosures about Gemeni and Nano Banana, but
| does that start to feel a little like a conflict of interest or
| something similar in an article discussing their competition?
| kart23 wrote:
| The critiques of 'circular funding' don't really make sense to
| me. If you invest 20 billion and you get back 20 billion, your
| profit is the same. Sure your revenues look higher but investors
| have access to all that information and should be taking that
| into account, just like all the other financial data.
|
| Michael Burry is betting against AI growth translating into real
| profits as a whole, not the circular funding.
| belter wrote:
| >> If you invest 20 billion and you get back 20 billion
|
| Its about keeping Wall Street bubble momentum, not financials.
| kart23 wrote:
| Isn't that the entire stock market for the last 20 years?
| myhf wrote:
| It's certainly a problem when circular investment structures
| are used to get around legal limits on the amount of leverage
| or fractional reserve, or to dodge taxes from bringing offshore
| funds onshore.
| londons_explore wrote:
| Plenty of sneaky ways of using different accounting years
| offshore to push taxes forward indefinitely too, since the
| profit is never present at the year end.
| biggoodwolf wrote:
| if you invest 20 and get 20 then you got 0% profit
| abakker wrote:
| 0% NET accretive profit - the OP was saying that the
| invest/return wash doesn't affect prior profitability, just
| revenue. Obviously, the new profitability inclusive of the
| new revenue will actually by lower because of the zero margin
| wash trade.
| nh23423fefe wrote:
| Why would you say that? If take cash and buy an asset I
| haven't lost money.
| Detrytus wrote:
| But you haven't made any money either. That's what "profit"
| means.
|
| Also, "the asset" here means stocks of a company that is
| losing billions dollars per year. OpenAI has no clear path
| to become profitable, especially given the fact that Google
| has just leaprfroged them with their Gemini 3 model.
| cyanydeez wrote:
| Depends on when 20 goes in and 20 comes out.
|
| And how inflation and interest are accounted.
| mvkel wrote:
| The problem is that stocks are often valued and traded on
| revenue growth, not profit[0] So circular funding generates
| stock price bumps when, as you said, there's no inherent value
| underneath. Creates a recipe for a crash.
|
| [0] consider pagerduty, incredibly profitable with little
| revenue growth. Trading at 1.5X revenue, where high revenue
| growth, unprofitable companies are trading at 10X revenue.
| mewpmewp2 wrote:
| Both are taken into account. Potential profitability is taken
| into account with growth companies. Circular funding has no
| effect on that. With unprofitable companies case is made on
| how risky the company is and what the potential profit will
| be in the future.
| mvkel wrote:
| I would disagree, at least in the short term. Exhibit A:
| AMD's stock rose 36% at the announcement of their OpenAI
| circular deal. If 1+1 = 3 and there is potential profit to
| be gleaned from such a deal, then it isn't circular, and is
| just plain good business. But the fact that AMD's stock
| collapsed back to where it was shortly after suggests
| otherwise
| mewpmewp2 wrote:
| This isn't to do with this being circular. It is moreso
| that AMD is thought to be falling behind in AI race, but
| OpenAI doing a deal with them is a strong indicator that
| they might have potential to come back.
| cyanydeez wrote:
| Its crypto wash trading.
| shwaj wrote:
| Why? Wash trading is about selling and then requiring the
| same asset for tax purposes. How is this analogous, other
| than that you presumably dislike both practices?
| myownpetard wrote:
| In crypto, wash trading usually refers to the practice of
| exchanges or project creators colluding to trade the same
| asset back and forth in order to make the
| volume/liquidity/popularity look greater than it is.
|
| - "Our coin hit $100M daily volume, get on this
| rocketship before it's too late!"
|
| - "Our exchange does $1B annually, so you know we're
| trustworthy!"
|
| - "Hey investors, look at the massive demand for our GPUs
| (driven by the company we invested $100B)!"
| echelon wrote:
| Nvidia is buying customers that will likely have increasing
| need for Nvidia. Those investment dollars will be spent on
| Nvidia. Future dollars will be spent on Nvidia.
|
| Second order effects are that everyone serviced by AI today
| will need even more AI tomorrow. Nvidia is there for that.
| They're increasing AI proliferation.
|
| By increasing the number of engineers, dollars, watts spent
| on GPU, Nvidia grows its market.
|
| The added benefit here is that Nvidia gets to share in the
| upside if any of these companies succeed in their goals.
|
| It's as if Microsoft had Azure back before the doctom boom
| and took investments in Google, Amazon, and Facebook in
| exchange for hosting them. (And maybe a few misfires, like
| WebVan.)
|
| This is really smart chess play.
| danvayn wrote:
| I feel like it's almost more of a Popular stock thing.
| Consider if pagerduty eked out an empty deal with any one of
| the "Pop stocks" that had little impact on their real
| profitability. Would stock trade differently or better? It
| feels like it really would in the modern market. Like even if
| the numbers weren't a big change, the buzz would be.
| Jare wrote:
| Just because it's legal and in the open doesn't mean it's sound
| or not creating perverse incentives. Investors that "should be
| taking that into account" probably are, and hoping that they
| come out on top when the bubble bursts. That means pain for
| many people. Those are very valid reasons to point the finger
| and criticize.
| whatshisface wrote:
| If you invest $100B and get back $40B in sales, you're
| investing $60B of money and $40B of your products. This is
| simple stuff. The question is whether or not it is a good
| investment. Probably not.
| buzzin_ wrote:
| It's worse than that. One side of the "circle" is 40 billion,
| the other side is 300. Why not just subtract it, and say 260
| billion is going one way.
|
| The real story is that Nvidia is accepting equity in their
| customers as a payment for their hardware. "What, you don't
| have cash to buy our chips? That's OK, you can pay by giving us
| 10% of everything you earn in perpetuity."
|
| This has happened before, let's call it the "selling the goose
| that lays golden eggs scan." You can buy our machine that
| converts electricity into cash, but we will only take
| preorders, after all it is such a good deal. Then, after
| bulding the machines with the said preorder money, they of
| course plugged the machines in themselves instead of shipping
| them, claiming various "delays" in production. Here I'm talking
| about the bitcoin mining hardware when the said hardware first
| appeared.
|
| Nvidia is doing similar thing, just instead of doing it 100%
| themselves, they are 10% in by acquiring the equity in their
| customers.
| calvinmorrison wrote:
| > Here I'm talking about the bitcoin mining hardware when the
| said hardware first appeared.
|
| even better, we take preorders, while we delay for 1 year, we
| run the ASICs ourselves with way outsized TH/s power compared
| to the world. Once we develop the next one, we release the
| 'new' one to the public with 1/10th of the power.
| mr_toad wrote:
| Nvidia could have invested elsewhere, but they're doubling down
| on AI.
|
| Their shares have been tanking for a month, even after a very
| good earnings report, so perhaps the market seeks a little more
| diversity?
| chasd00 wrote:
| this isn't an investing site but Coreweave is what I watch.
| All those freaking datacenters have to get built, come
| online, and work for all the promises to come true. Coreweave
| is already in a bit of a picklye, I feel like they are the
| first domino.
|
| /not an investing/finance/anything to do with money expert.
| mr_toad wrote:
| Coreweave's price has been sliding since June. Odd for a
| bubble to behave like this.
| MarkusQ wrote:
| "How did you go bankrupt?" Bill asked.
|
| "Two ways," Mike said. "Gradually and then suddenly."
|
| -- Ernest Hemingway
| dylan604 wrote:
| I've run into this before in other industries as well. Sports
| franchises are notorious where they expect any company doing
| work for the franchise to then spend some of that money earned
| back with the franchise in forms of buying advertising, suites,
| etc to the point that very little money if any is made by the
| vendor.
| arcticbull wrote:
| Burrys critique is that the Nvidia funding deals have them
| investing money in a company and getting both stock in that
| company and their own money back to buy the chips. They then
| book the chip sales in revenue but they don't show the
| investment as a cost, since investments are treated separately
| from an accounting perspective. So it looks like they're
| growing revenue organically at no cost, while that doesn't seem
| logically consistent with what's actually happening.
| danielmarkbruce wrote:
| The truth is you can't properly account for these
| transactions. If they are making legitimate equity
| investments (ie, that an independent investor would
| reasonably make) it's all fine. If they are investments that
| don't hold water, it's fraud.
|
| It's not that different to any type of vendor financing.
| Vendor financing is legit, if done legitimately.
| danvayn wrote:
| Burry's critique is even more general than that when it comes
| to tech companies doing accounting fraud. It's his argument
| as to why "the market doesn't make sense" and his bets have
| failed -- which is why I'm not sure anyone would summarize it
| as "betting against AI growth translating into real profits
| as a whole"
| fngjdflmdflg wrote:
| Yeah, I saw this critique show up a few months ago and now I'm
| seeing it everywhere, even in major financial news sites like
| Bloomberg.[0] It's certainly worth discussing, but people are
| taking it as a gotcha to prove the AI boom is fake. However,
| all the AI companies have to buy from Nvidia anyway. And Nvidia
| has tons of cash, in fact it has 4x the cash on hand now than
| it did in 2023, despite all the investments.[1] So yes, if they
| think the AI market will grow then of course they will buy into
| it. If all of Nvidia's deals went bad, their stock would
| plummet, but not because they lost a few tens of billions,
| rather because that would mean the AI market is going down in
| general. There is a great counterexample to the "AI is propped
| up by circular funding" argument in Google, which uses its own
| TPUs and builds its own AI, and integrates it into it's own
| end-user products, no circular deals needed. If AI is propped
| up by anything it is investors and companies thinking it will
| give them a huge return. Circular deals are a result of that:
| cash is going everywhere into that market, it's that simple.
| The AI boom may be a bubble, but not due to circular deals in
| particular.
|
| [0]
| https://www.bloomberg.com/news/features/2025-10-07/openai-s-...
|
| [1] https://www.cnbc.com/2025/12/04/nvidia-has-a-cash-problem-
| to... -- Actually "Cash and short-term investments", not sure
| what is included in that, but I don't think it includes these
| major deals.
| nrhrjrjrjtntbt wrote:
| No. Your revenue increased by 20bn and your profit increased by
| (for arguments sake) 5bn. You also have 20bn of investments
| that you then need to value.
|
| Is that bad? Depends. Did the purchase of chips make sense.
| Would they have done that if someone else say an independent
| entity invested?
| 0manrho wrote:
| I'm not sold on the circular funding argument either, though it
| certainly wouldn't surprise me if it (or some other form of
| corruption/collusion) turned out to be true to some extent.
| Personally, I firmly believe that Silicon Valley jumped-the-gun
| early on AI investment for fear of being left behind and over-
| estimating the potential of LLM-based AI (at least in the short
| term), and now are stuck in the awkward position of not being
| able to admit it without shaking investor confidence which they
| don't want to do as they still need significant more investment
| to mature the tech to a point that it starts paying significant
| returns with respect to the investment.
|
| > Michael Burry is betting against AI growth translating into
| real profits as a whole, not the circular funding.
|
| It's not even so much that he's betting against that
| translating into profits, but rather that the pace of
| infrastructure investments is too out of sync with the timeline
| of realizing those profits, and also that throwing money at the
| problem doesn't necessarily move that break-even ROI timetable
| forward in a sustainable way (beyond a certain point).
|
| That's what popped the DotCom bubble. It was the fundamental
| fallacy that potential profits and revenues were directly
| proportional to and/or dependent on investment, and even more
| specifically that more investment would realize not just
| greater returns, but the belief that more investment yielded
| greater return _sooner_ which just wasn 't true - at least not
| beyond a certain point. So while many people associate the
| Pets.com flop with the dotcom bubble, it was actually over
| investment in and by Cisco (chiefly, but not solely) that
| really precipitated the bubble bursting.
|
| A lot of people see lots of parallels with the AI bubble in
| that context. If the ROI timeframe is greater than the viable
| lifecycle of hardware bought today, how wise is it to spend big
| today? Does it accelerate the timeframe if you spend more, and
| if so by how much, and up to what point? There's also something
| to be said about market momentum and strategic positioning, but
| that's hard to quantify, especially in the context of
| forecasting how impactful it will be on realizing your ROI at
| some indefinite point in the future.
| johnnyanmac wrote:
| >should be taking that into account
|
| There's a lot of "shoulds" that go out the window when you're
| basically in a hype cycle. We're high stakes rolling at this
| point. It's a matter of when the house goes broke.
|
| >Michael Burry is betting against AI growth translating into
| real profits as a whole, not the circular funding.
|
| One can lead to the other.
| strangescript wrote:
| Its so wild to me that people that should know better pretend
| that this kind of stuff doesn't happen in every industry.
| tokai wrote:
| At this scale? Why don't you give some examples.
| strangescript wrote:
| MS invested in Apple to keep them afloat so they had a
| competitor and avoid anti-trust lawsuits.
|
| That seems more nefarious than buying products from each
| other. Either way it worked out fine for Apple.
| shadowgovt wrote:
| Pull our POV back far enough, and isn't "circular funding" just
| "The economy?"
|
| Money circulates; it's what it does. The real question is to
| what extent circulation among a small group of firms is either
| collusion in disguise (i.e. decisionmaking by only one actual
| entity falsely measured as multiple independent entities) or a
| fragile ecosystem masquerading as a healthy one (i.e. an
| "island economy" where things look great in the current status
| quo, but the moment the fish go away the entire cycle instantly
| collapses).
| givemeethekeys wrote:
| Isn't news of Bury or Pelosi, or anyone else's investments
| usually 3 months old?
| doctorpangloss wrote:
| > quietly arming themselves for a breakout.
|
| If I wanted to read Gemini's opinion about this issue with the
| voice of a crank technical analysis, I would
| fwip wrote:
| - **The Cash Flow Mystery**: ... - **The Inventory
| Balloon**: ... - **The "Paper" Chase**: ...
|
| More AI slop.
| pinkmuffinere wrote:
| I agree it's poorly written, but I'm _much_ more interested in
| whether it is correct, or incorrect. Do you believe it is
| incorrect?
| 0xbadcafebee wrote:
| Apparently it doesn't matter to them
| Magnets wrote:
| 75% margin means they have around $79.2bn of potential
| revenue sitting in inventory. Next quarter revenue is
| projected to be $65bn, so 110 days of stock.
| fwip wrote:
| I don't have an opinion on whether it's correct or not. I see
| AI writing, I stop reading. When compared to human-authored
| prose, AI writing is much more likely to be convincing-but-
| wrong. I don't need to be ingesting stuff engineered to be
| believable, with correctness only as a secondary concern.
|
| If it's correct, it's usually because a better source has
| already written it correctly, or because it's trivial to
| somebody who knows what they're talking about.
|
| AI writing is a sign that the author either doesn't know the
| material, doesn't want to write it, or both. Because
| distinguishing "too lazy to write it" and "too stupid to
| fact-check it properly" is very difficult on my end as a
| reader, it's better to be safe than sorry. There's no sense
| in exposing my malleable wetware to slop of unknown
| provenance.
|
| There has been no shortage of human authors writing about
| this topic. I don't know who "Philip Pieogger" is, so I have
| no reason to prefer him as a co-author.
| gchadwick wrote:
| > However, Groq's architecture relies on SRAM (Static RAM). Since
| SRAM is typically built in logic fabs (like TSMC) alongside the
| processors themselves, it theoretically shouldn't face the same
| supply chain crunch as HBM.
|
| It's true SRAM comes with your logic, you get a TSMC N3 (or N6 or
| whatever) wafer, you got SRAM. Unfortunately SRAM just doesn't
| have the capacity you have to augment with DRAM which you see
| companies like D-Matrix and Cerebras doing. Perhaps you can use
| cheaper/more available LPDDR or GDDR (Nvidia have done this
| themselves with Rubin CPX) but that also has supply issues.
|
| Note it's not really about parameter storage (which you can
| amortize over multiple users) it's KV cache storage which gets
| you and that scales with the user count.
|
| Now Groq does appear to be going for a pure SRAM play but if the
| easily available pure SRAM thing comes at some multiple of the
| capital cost of the DRAM thing it's not a simple escape hatch
| from DRAM availability.
| jsheard wrote:
| SRAM scaling also hit a wall a while ago, so you can't really
| count on new processes allowing for significantly higher
| density in the future. That's more of a longer-term issue with
| the SRAM gambit that'll come into play after the DRAM shortage
| is over though - logic and DRAM will keep improving while SRAM
| probably stays more or less where it is now.
| zozbot234 wrote:
| You can still scale SRAM by stacking it in 3D layers, similar
| to the common approach now used with NAND flash. I think HBM
| DRAM is also directly stacked on-die to begin with,
| apparently that's the best approach to scaling memory
| bandwidth too.
|
| It'll be interesting to see if we get any kind of non-NAND
| persistent memory in the near future, that might beat some
| performance metrics of both DRAM and NAND flash.
| wtallis wrote:
| NAND is built with dozens of layers on one die. HBM DRAM is
| a dozen-ish dies stacked and interconnected with TSVs, but
| only one layer of memory cells per die. AMD's X3D CPUs have
| a single SRAM die stacked on top of the regular CPU+SRAM,
| with TSVs in the L3 cache to connect to the extra SRAM. I'm
| not aware of anyone shipping a product that stacks multiple
| SRAM dies; the tech definitely exists but it may not be
| economically feasible for any mass-produced product.
| arcticbull wrote:
| The issue is size, SRAM is 6 transistors per bit while
| DRAM is 1 transistor and a capacitor. Anyone who wants
| density starts with DRAM. There's never been motivation
| to stack.
| toast0 wrote:
| > AMD's X3D CPUs have a single SRAM die stacked on top of
| the regular CPU+SRAM, with TSVs in the L3 cache to
| connect to the extra SRAM.
|
| Just FYI, the latest X3D flipped the stack; the cache die
| is now on the bottom. This helps transfer heat from the
| compute die to the heatsink more effectively. In armchair
| silicon designer mode, one could imagine this setup also
| adds potential for multiple cache dies stacked, since
| they do interpose all the signals, why not add a second
| one ... but I'm sure it's not that simple, for one: AMD
| wants the package z-heights to be consistent between the
| x3d and normal chip.
| mattaw2001 wrote:
| I agree with your description and conclusion.
| Additionally the companies that can make chip stacks like
| HBM in volume are the HBM manufacturers. As they are
| bottlenecked by the packaging/stacking right now (while
| also furiously building new plant capacity) I can't see
| them diverting manufacturing to stacking a new SRAM tech.
| LargoLasskhyfv wrote:
| Every time I read about D|S-RAM scaling I'm reminded of
| https://www.besang.com/
|
| Ever heard of them? What do you think? Vaporware?
| rayiner wrote:
| Is Groq different from Grok?
| grandmczeb wrote:
| They're unrelated. Groq = chip company, Grok = model by x.ai.
| dhosek wrote:
| The similarity in names is likely to Groq's detriment.
| jsheard wrote:
| They certainly weren't happy about it:
| https://groq.com/blog/hey-elon-its-time-to-cease-de-grok
| throw234678 wrote:
| This post is written with its _intellectual fly_ open. I 'm not
| sure whether it was partly AI-generated, or whether the author
| has spent so much time ingesting AI-generated content that the
| tells have rubbed off, but this article has:
|
| - Strange paragraph-lists with bolded first words. e.g. "The Cash
| Flow Mystery"
|
| - The 'It's not just X; it's Y' meme: "Buying Groq wouldn't just
| [...], it could give them a chip that is actually [...]. It's a
| supply chain hedge."
|
| Tells like:
|
| - "My personal read? NVIDIA is [...]"
|
| - "[...]. Now I'm looking at Groq, [...]"
|
| However, even if these parts were AI generated, it's
| simultaneously riddled with typos and weird phrases:
|
| - "it looks like they are squeezing each other [sic] balls."
|
| - Stylization of OpenAI as 'Openai'.
|
| Not sure what to make of this low-quality prose.
|
| Even if the conclusion is broadly correct, that doesn't mean the
| reasoning used to get there is consistent.
|
| I do, at least, appreciate that the author was honest up-front
| with respect to use of Gemini and other AI tools.
|
| Final grade: D+.
| glitchc wrote:
| Why use a throwaway account if posting an honest critique?
| lukebechtel wrote:
| avoiding vindictiveness perhaps
| throw234678 wrote:
| 1. I haven't commented on HN in a while and didn't want to
| dig up my password. Throwaway accounts are a tradition.
|
| 2. I don't want people to see my disparagement of the quality
| of prose in this article as indication of personal agreement
| or disagreement with any of the points in the article. I have
| no horse in this race. I just want to read high-quality
| material. I love HN, but I'm not sure how much longer HN will
| be a place I can frequent in this respect. Have the hills not
| eroded? What of childlike curiosity?
|
| 3. My comment is nothing special. Others also point out
| portions of this article may be AI generated. People can
| verify the contents of my comment independently and come to
| their own conclusions. It does not require that I lean on
| implied authority of some form.
|
| I read a lot, it's basically all I do. I wish writers
| maintained the contract of spending at least as much energy
| writing out ideas as they expect their audience to expend
| while reading them.
|
| I will now log out of this account and lose the password. I
| hope this was helpful. I intend no malice; I'm sure the
| author of this piece is a kind person and fun to hang out
| with. I hope they take this feedback the right way.
| johnnyanmac wrote:
| >I love HN, but I'm not sure how much longer HN will be a
| place I can frequent in this respect. Have the hills not
| eroded? What of childlike curiosity?
|
| Culture shifts, even If you want to pretend you're beyond
| trends. I know HN wants to say "we're not Reddit" but
| cultural osmosis from Reddit and the internet at large will
| change how you interact even here.
|
| That said:
|
| >I wish writers maintained the contract of spending at
| least as much energy writing out ideas as they expect their
| audience to expend while reading them.
|
| Maybe they did. Thing is that it's rare to be a skilled
| orator and a highly technical person (AKA the audience
| here). I could spend 20 hours writing this piece (after
| researching) and it'd be worse than someone who spent 2
| hours writing it up but basically write full time. Don't
| let aptitude be confused with effort.
| 0xbadcafebee wrote:
| Is this the new form of ad-hominem? ad-AI?
| kfarr wrote:
| ai-hominem
| 0_____0 wrote:
| ad machina
| mr_toad wrote:
| Ad machinam. "To the machine".
| whimsicalism wrote:
| HN is full of know-little blogspam, although rarely does it get
| top top like this one did.
| johnecheck wrote:
| > Even if the conclusion is broadly correct, that doesn't mean
| the reasoning used to get there is consistent.
|
| This is the conclusion of a reply that focused entirely on
| critiquing OP's style/AI use instead of their reasoning?
| Ironic.
| throw234678 wrote:
| Poe's Law strikes again!
| johnfn wrote:
| It does amuse me when you have great, clean writing in some
| parts of a post, but then you have a sentence like
|
| > As we head into 2026, when looking at Nvidia, openai and
| Oracle dynamics, it looks like they are squeezing each other
| balls.
|
| Yeah I don't think there's a snowball's chance in heck that an
| LLM wrote that one, lol. My best guess is that the author
| combed over some of their prose with an LLM, but not all.
| tarsinge wrote:
| On the contrary, recently I encountered many cases where
| ChatGPT randomly switched to a very familiar style for a few
| sentences. It has a strong Reddit vibe when it does it, which
| I guess is not surprising.
| xmprt wrote:
| I've seen this happen when AI is asked to spot fix a single
| sentence in the middle of an essay and it fails to maintain
| the style of the rest of the writing.
| SpaceManNabs wrote:
| I am laughing really hard. That first sentence of "Final
| Thoughts" is amazing.
|
| the inconsistent capitalization, the odd punctuation, and the
| grammar mistakes. Love it.
|
| I want this article to stay on the front page because it is
| hilarious.
| maczwei wrote:
| In other post: https://philippeoger.com/pages/why-googles-tpu-
| could-beat-nv... in the paragraph: "What This Means for the
| Future NVIDIA is not standing still; its Q3 Fiscal 2026
| earnings were a record \$57.0 billion in revenue, with Data
| Center revenue hitting \$51.2 billion. But the growing adoption
| of TPUs introduces a long-term risk to NVIDIA's core business
| model." they write about 2026 as if it already was. Could be a
| human typo or AI mistake.
| jsnell wrote:
| Companies' fiscal years do not necessarily align with the
| calendar year. Nvidia has indeeded just reported its FY2026
| Q3 results.
|
| You might want to get your facts right first when flinging
| accusations. Like, this fact is trivial to check! Why didn't
| you?
|
| (Not an endorsement of either of the articles.)
| MarkusQ wrote:
| Nvidia's (fiscal) Q3 2026 financial statements have been
| released, and are what this is all about. Fiscal years may be
| correlated with calendar years, but sometimes (as in this
| case) the correlation is rather elastic.
| tzury wrote:
| The Burry short is just one data point, but the "facts we know"
| are piling up fast.
|
| Here is a possible roadmap for the coming correction:
|
| 1. The Timeline: We are looking at a winter. A very dark and cold
| winter. Whether it hits before Christmas or mid-Q1 is a rounding
| error; the gap between valuations and fundamentals has widened
| enough to be physically uncomfortable.
|
| The Burry thesis--focused on depreciation schedules and circular
| revenue--is likely just the mechanical trigger for a sentiment
| cascade.
|
| 2. The Big Players:
|
| Google: Likely takes the smallest hit. A merger between DeepMind
| and Anthropic is not far-fetched (unless Satya goes all the way).
|
| By consolidating the most capable models under one roof, Google
| insulates itself from the hardware crash better than anyone else.
|
| OpenAI: They look "half naked." It is becoming impossible to
| ignore the leadership vacuum. It's hard to find people who've
| worked closely with Altman who speak well of his integrity, and
| the exits of Sutskever, Schulman, and others tell the real story.
|
| For a company at that valuation, leadership credibility isn't a
| soft factor--it's a structural risk.
|
| 3. The "Pre-Product" Unicorns: We are going to see a reality
| check for the ex-OpenAI, pre-product, multi-billion valuation
| labs like SSI and Thinking Machines.
|
| These are prime candidates for "acquihres" once capital tightens.
| They are built on assumptions of infinite capital availability
| that are about to evaporate.
|
| 4. The Downstream Impact:
|
| The second and third tier--specifically recent YC batches built
| on API wrappers and hype--will suffer the most from this
| catastrophic twister.
|
| When the tide goes out, the "Yes" men who got carried away by the
| wave will be shouting the loudest, pretending they saw it coming
| all along
| jml7c5 wrote:
| Is this AI-written?
| usednet wrote:
| Very helpful, an AI comment analyzing an analysis of AI
| jchw wrote:
| I don't believe your comment is just a direct dump out of an
| LLM's output, mainly because of the minor typo of "acquihires",
| but as much as I'd love to ignore superficial things and focus
| on the substance of a post, the LLM smells in this comment are
| genuinely too hard to ignore. And I don't just mean because
| there's em-dashes, I do that too. Specifically these patterns
| stink _very_ strong of LLM fluff:
|
| > leadership credibility isn't a soft factor--it's a structural
| risk.
|
| > The Timeline/The Big Players/The "Pre-Product" Unicorns/The
| Downstream Impact
|
| If you really just write like this entirely naturally then I
| feel bad, but unfortunately I think this writing style is just
| tainted.
| cmiles8 wrote:
| The circular funding is concerning, but more concerning are
| suggestions that supply might be vastly exceeding demand. Not
| that people don't want chips but that the chip production now
| exceeds the ability to power them up and use them. The shortage
| is power and racks in data centers ready to go. Folks are running
| numbers suggesting there's a bunched chips now just sitting
| around.
|
| That, combined with some cooling from an AI hype bubble burst
| (see separate articles about companies missing quota as folks
| aren't buying as much AI as the hype hoped) and there's a
| potential ugly future where the headline demand plummets in top
| of idle chips waiting to be powered on. Suddenly the market is
| flooded with chips nobody wants.
| markbao wrote:
| AI-generated section "NVIDIA's earnings" nerfed the credibility
| of this piece.
| jmole wrote:
| Isn't circular funding how the entire economy works?
|
| I can see how you could make an argument that this particular
| ouroboros has an insufficient loop area to sustain itself, or
| more significantly, lacks connection to the rest of the economy,
| but money has to flow in circles/cycles or it doesn't work at
| all.
| cyanydeez wrote:
| Only when using non aligned intwrests, like government funding
| roads.
|
| When interests directly align and parties are largely owned by
| the same people, its wash trading.
|
| The point of wash trading is to make activity increase the
| value of an asset via a netzero activity. Since nothing is
| generated from the activity its circular, eg, nothing physical
| changes hands.
|
| Crypto trading is the golden child of wash trading as the
| primary mode of increasing the value of an asset.
|
| Its unsurprising then that the company that got rich on crypto
| wash trading is doing its own attempts to drive artificial
| demand.
| morshu9001 wrote:
| Parties in an economy don't normally buy something that they
| sell at the same time. It's hazier than that here, but still
| looks like Nvidia is buying GPUs from itself via OpenAI and
| Oracle.
|
| Btw there are examples involving sanctioned economies. Most US
| saffron comes from Spain, all of whose saffron comes from Iran.
| Azerbaijan exports way more gas than they produce, cause they
| also buy from Russia.
| IshKebab wrote:
| > However, Groq's architecture relies on SRAM (Static RAM). Since
| SRAM is typically built in logic fabs (like TSMC) alongside the
| processors themselves, it theoretically shouldn't face the same
| supply chain crunch as HBM. > > Looking at all those pieces, I
| feel Oracle should seriously look into buying Groq.
|
| I don't see why. Graphcore bet on SRAM and that backfired because
| unless you go for insane wafer scale integration like Cerebras,
| you don't remotely get enough memory for modern LLMs. Graphcore's
| chip only got to 900MB (which is both a crazy amount and not
| remotely enough). They've pivoted to DRAM.
|
| You could make an argument for buying Cerebras I guess, but even
| at 3x the price, DRAM is just so much more cost effective than
| SRAM I don't see how it can make any sense for LLMs.
| twoodfin wrote:
| Forget about DRAM vs. SRAM or whatever: How does a cheaper
| source of non-Nvidia GPUs help Oracle? They're not training
| models or even directly in the inference business. Their pitch
| is cloud infra for AI, and today that means CUDA & Nvidia or
| you're severely limiting your addressable market.
| wmf wrote:
| Yeah, some customer would have to commit to renting the chips
| before Oracle would buy them.
| calflegal wrote:
| My god, this article and half the comments here seem like they
| came from AI.
|
| Dead internet much?
| Jabrov wrote:
| You're absolutely right!
| frameset wrote:
| Wow, calflegal. That's not just good insight, it's smart
| thinking.
|
| I think you're correct -- there's a lot of LLM generated
| content here!
| CobrastanJorji wrote:
| Regardless of the content itself, using Nano Banana to illustrate
| OpenAI's financial bullshittery is some grade A snark.
| wmf wrote:
| _Since SRAM is typically built in logic fabs (like TSMC)
| alongside the processors themselves, it theoretically shouldn 't
| face the same supply chain crunch as HBM._
|
| DRAM and logic fabs are both sold out so replacing one with the
| other doesn't really help. And SRAM uses ~6x more silicon area
| than DRAM.
|
| Groq may be undervalued but not for supply chain reasons.
| mr_toad wrote:
| > Groq may be undervalued but not for supply chain reasons.
|
| Groq isn't listed is it? Hard to know what its valuation might
| look like.
| wmf wrote:
| I see people routinely discussing valuations of private
| companies with certainty. I don't know how often those
| numbers are wrong.
| blindriver wrote:
| This is what happens when highly confident uneducated people read
| slop from other uneducated people with an agenda (Twitter, Burry
| et al) and then regurgitate more slop.
|
| There is no circular funding. There's certainly circular
| speculation that is driving up the prices but the revenues are
| all accounted.
|
| The DSO change is meaningless if you understand accounting.
|
| The inventory building up is the cost of materials and incomplete
| inventory. It's not chips sitting around waiting to be deployed.
|
| > holding ~120 days of inventory seems like a huge capital drag
| to me.
|
| Yeah I guess this guy who knows nothing about running a business
| like Nvidia is allowed to make confident statements like this
| despite no education or experience.
|
| This article is garbage and he wasted his 48 hrs investigating
| the same things I read in another worthless tweet several weeks
| ago.
| dboreham wrote:
| Are partially processed wafers on Nvidia's balance sheet or
| TSMC's? Or are you saying Nvidia is holding sawn die in
| inventory? Confused as to what state the product might be in
| for it to make sense to hold for 4 months when supposedly you
| can sell everything you make.
| blindriver wrote:
| They are on nvidias balance sheet. You also don't sell
| freshly baked chips the way you do cookies. Just because they
| are hot out of the oven doesn't mean you sell it right away.
| tims33 wrote:
| The specifics of the article zero sense. Net Income and Operating
| Cash Flow are not the same thing so there is no mystery about
| whey they are different especially in a business with large Capex
| and long lead times.
|
| NVIDIA's historic DSO figures have also ranged from 41 to 57 over
| the last 5 years, so again not that crazy.
| next_xibalba wrote:
| > Net Income and Operating Cash Flow are not the same thing
|
| This is the second article that gained a lot of traction on HN
| in the last few months with similar fundamental errors. The
| previous one was similarly written by someone with a dev
| background where they didn't understand the difference between
| gross margins, operating profit, and net income-concepts which
| were the basis for their analysis.
|
| I wonder with this author or the previous, if they're just a
| little too confident in their abilities. Accounting and Finance
| are very deep and highly technical fields. Particularly for
| publicly traded companies where the businesses tend to be very
| complex and sophisticated and the consequences for making
| mistakes or committing fraud are severe. I'm not suggesting
| that non-finance people shouldn't try to analyze this stuff,
| but some humility might be in order.
|
| It reminds me of a data scientist I worked with who was doing
| some modeling on companies' revenues. He believed he'd
| uncovered some secret, conspiratorial truth about Samsung
| having trillions in revenues, thereby making it the largest and
| most powerful entity on Earth. We had to gently inform him that
| he was looking at the revenues denominated in Korean Won and
| they needed to be converted to USD.
| danielmarkbruce wrote:
| A confident yet clueless swe? I don't believe you.
| next_xibalba wrote:
| Don't get me wrong, I love SWEs, devs, DSs, etc. and I
| think they do tend to be much smarter than the average.
| But, in my experience, they also exhibit higher than
| average hubris.
| Havoc wrote:
| Not a big fan of the circular observation. It's not the gotcha
| people seem to think.
|
| If the baker sells bread to the butcher, and the butcher sells
| meat to the baker then they can still both go to bed with a belly
| full of sandwich (aka actual utility & substance).
|
| Adding a third party to make it look more circle-y doesn't change
| that logic.
|
| Round trip financing is mostly an issue if it is artificial (e.g.
| a circle of loans) and between affiliated parties, not when
| something of substance is delivered. Oracle is a business partner
| of nvidia but I'd wager they'll still kick up a fuss if they
| don't get their pallets of GB200s. They'll expect actual
| delivery...like you know...in a real sale.
| phailhaus wrote:
| That's the wrong analogy, because the butcher is giving _money_
| to the baker for the bread. If we we fix the analogy, then the
| baker gives money to the butcher so that he buys their bread
| _with that money_. The butcher cannot afford the bread without
| it!
| hn_acc1 wrote:
| And the baker then tells people to buy his bread, because
| it's so good, the butcher buys it every day!
| Havoc wrote:
| >so that he buys their bread with that money.
|
| So basically like any business out there reliant on incoming
| cash to pay suppliers?
|
| This doesn't magically create money any more than the rest of
| the economy...which has believe it or not CIRCULATING money
| coppsilgold wrote:
| Isn't this type of "circular funding" equivalent to bartering?
| And why is this a problem?
|
| Basically, the gold rush has reached a point where the shovel
| seller wants a stake in the operation.
|
| I wonder if we would one day have a situation where NVIDIA no
| longer wants to sell chips to anyone and just use them
| themselves. Some special developments would have to occur to
| reach this point I think.
| christkv wrote:
| There is no extra wafer capacity anywhere in the system and
| realistically it will take several years to unstick that. So not
| sure where the slack is that will let sudden massive competition
| appear to compete with Nvidia on the newest nodes?
| devops000 wrote:
| Micheal Burry is only betting 10M on this. Not big deal
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