Nvidia's $750B in Deals Reignite Circular AI Fears | Hacker News Reader

Nvidia's $750B in Deals Reignite Circular AI Fears

bloomberg.com

81 pointspetethomas77 comments

Alternative source https://finance.yahoo.com/technology/ai/articles/nvidia-plan...

> The concern is familiar: NVIDIA money funds customers who then buy NVIDIA chips.

It's come to a point (or has it passed it) that these numbers are completely meaningless. One hundred billion here, $750B there, $1.2T over a year or so, toss in $300B for a few hyperscalers there. There's no imaginable scenario where these are actually backed up with real profit to where the investments make sense. Just passing the same hundred dollar bill among everyone and all booking it as revenue. I can't wait until it pops.

Displacing a vast amount of labor is what makes the numbers make sense. We don't know if they'll succeed or not, but it's obviously what they're chasing.

In addition to actual lost jobs, replacing a skilled white collar worker with a fungible operator of AI lowers the salary for that role significantly.

Have they thought about the expenses in running continental Death Pits?

OK, dumb attempt at funny over, but certainly someone is thinking about instability costs? Even if everyone is super cool with literal Death Pits, they don't run for free. And not everyone will be cool with watching their entire family die, which will mean substantial costs in security - and money spent on security, that's just setting money on fire, that money doesn't work any more.

I know they've batted around the ideas of "compliance collars" and suchlike for the guys running the Death Pits, but I haven't seen anything that wouldn't be ultimately defeated by a typical zoo chimpanzee, let alone a psychopathic Delta Force guy with more advanced degrees than your entire family. He will not be pleased with your "compliance collar" thing.

And the brain control chips they've been trying to get working . . well, they're not ready yet. You'll just make the Delta Force guy even crazier .

The labour needs to be eliminated — essentially nobody in the economy paying them for an equivalent job — for enough money to be freed up for it to work. But then these people who are either unemployed or job sharing some remaining work don’t have the money to buy the products of all the AI companies’ customers. At the necessary scale it will trigger economic demand collapse.

The whole idea is impossible.

Circular is a dumb way to describe it IMO, because it's not like both parties end up in the same place.

Nvidia is making trades for people to buy their GPUs.

Sometimes companies are trading stock for GPUs, sometimes money, other times something else.

In summary, Nvidia is selling GPUs.

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

It's only a problem if you dont think about it.

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

We all are, mostly.

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

No, Nvidia is getting paid. Nvidia puts down a fraction of equity cash, and the recipients are taking that to PE to finance debt, using the GPUs as collateral. So Nvidia pays $1B, receiving company uses it to secure $10B in debt and buys $10B worth of GPUs.

Nvidia gets real cash, pays TSMC, etc.

The people in real trouble are companies like CoreWeave, Oracle, etc. that took an IOU from OpenAI (for example) to start a buildout, entirely debt financed. It works out so long as demand keeps going up, but the moment the music stops and that debt comes due and there's no revenue to pay it, game over.

Nvidia's concern isn't not actually getting paid, it's being faced with a glut of cheap, depreciated GPUs flooding the market impacting their future revenue. They'll live.

But OpenAI, not being able to pay CoreWeave, for example, that IOU, and then private credit coming for the debt payments from CoreWeave, is what would start the chain reaction. We may actually get to live to see Oracle fall.

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

> all you need to do is take those profits and give them to your customers to buy more things

Those customers aren't buying Nvidia chips with Nvidia's money. They're using Nvidia's equity check to finance debt, and then using debt to buy the GPUs. Nvidia invests $1B in someone like CoreWeave, CoreWeave then takes that check, goes to PE a borrows $10B w/ the GPUs as collateral. Nvidia basically paid $1B to get $10B in sales, and now CoreWeave is saddled with debt based on an IOU from the AI labs.

Nvidia is insulated from the debt exposure, but the companies doing the datacenter build outs are the ones in real trouble if the house of cards comes falling down.

So it’s even better, they’re 10x levering the money! Clearly I wasn’t thinking big enough

Right. The risk isn't accounting fraud, its the equity-to-debt loop that relies on all these companies making "enough money to pay it back someday."

Nvidia invests, that equity check gets used to secure 10x it in debt with the GPUs as collateral, and then they buy the chips.

Nvidia gets paid, so they don't hold the debt liability. But, if AI revenue doesn't cover those debt payments before the GPUs depreciate, the loop starts to unravel, and fast. CoreWeave, Oracle, all the "neoclouds" etc. will blow up, and there could potentially be a ton of PE debt that is now under-collateralized due to depreciation, causing a pretty big haircut to basically all of private credit.

why AI revenue will not cover?

Chinese models pushes prices down and quality up, that makes GPU-based automation more affordable, while covering more and more cases to automate.

You can debate that llm producers will go bankrupt, some of them at least for sure.

How do you lose in this market if you do gpu?

> How do you lose in this market if you do gpu?

You don't. Nvidia gets paid either way. They were never the ones in danger (outside of the buildout going bust and having a massive surplus of cheap, used GPUs flood the market).

> You can debate that llm producers will go bankrupt, some of them at least for sure.

And that's the risk that will cascade down and kill off a bunch of companies and cause a debt crisis. If (for example), OpenAI goes to Oracle and says "I promise I'll pay you, at some point in the future, $1T to build my datacenters" and then Oracle funds that build out with debt, and then OpenAI goes bust, or just doesn't make enough money or can't raise enough cash to start making payments on their IOU, Oracle now also can't pay their debt and will eventually go bust, and now the private credit market takes a huge haircut, potentially bankrupting entire funds (like what happened in '08).

I'm sure the bailouts are already getting negotiated

if the data center builders cant cover debt payments, market will likely flood with cheap data center gpus to cover some of the liabilities.

Some LLM companies paid with stocks instead of cash, or with a mix of cash and stocks. Sometimes Nvidia invested in companies and those companies used that money to buy Nvidia GPUs / NPUs.

Nvidia can lose a lot of money if those companies fail. But even in the absolute worst case, Nvidia can go back to making video game GPUs and they will be fine.

The problem is for everyone else who invested in AI. Especially American "401" retirement funds that always invest in the 100 biggest companies.

This is the narrative I completely do not Get. The ai is here , it will eat lots of markets . There’s no way back . If one llm vendor will go bankrupt, their capacity will be picked up. In fact before that it will be absorbed by other vendors . If let’s say OpenAI will fall out of race , it will start slowly on the course of a year selling their commitments to the winner. It’s still unhealthy still tens of billions will evaporate but this is not something can cause apocalypse

But if there is one thing trivial to see then it is the connection between loaned money and stock prices AS A WHOLE.

https://www.sciencedirect.com/science/article/abs/pii/S01651...

It's stronger for momentum stocks, but it's not like something like a gold mine escapes from it either.

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

Yeah, the "circular" language is obviously intended to imply unsustainability, as a system without external inputs must eventually run down. But this system is intended to have external inputs, revenue from customers that buy the services of the data centers. So the fundamental issue is just whether there will be enough such demand to justify the scale of the build-out.

These deals give Nvidia more exposure to that, in both directions. Certainly Nvidia shareholders should be cognizant of this. But nothing structurally problematic is occurring here.

It's circular in the same way you'd describe the whirlpool created by an emptying bathtub. Round and round it spins, sucking in external cash to sustain it.

Without continued external investment, the cycle stops, and we all learn what "too big to fail" looks like this time.

OPEN AI is living true to their name and foundation principles. Non profit and NO PROFIT, lol.

At what point do I start taking money out of my VTI holdings and parking it in cash - there is no way the market keeps going up.

Park it in BRK?

BRK has been roughly flat since the beginning of 2025; you might be better off in bonds or money markets (depending on your beliefs about near-term inflation).

Not that I have any skills in stock-picking whatsoever, but couldn't the recent lukewarm performance not also be an argument for BRK?

I mean their cash pile is also invested in money markets (so you get that), and the rest of the portfolio consists of quality companies where their (combined) valuation didn't explode in the last 1,5 years. So it's an opportunity to invest into something that might not be overheated.

BRK is 40% cash at the moment. I think "roughly flat" is evidence they're performing the strategy the OP wanted.

BRK has stated that they'll buy back in when prices are reasonable again, so it's an automatic "sell-high buy-low" strategy.

buffet may be holding his breath for some time

markets...irrational... longer than you stay solvent, etc.

Greg Abel has mostly replaced Buffet. Neither really care about the market as a whole. They're willing to buy any reasonably priced security with a promising future regardless of where the rest of the market is at. It's just that there are usually more of these available when the market is down.

First, don't park it in actual cash or you'll lose value to inflation which is currently running high. At a minimum put it in treasuries.

Second, trying to time the market is almost always a suboptimal strategy. The question is when will you likely need the money? If you won't need it for 10 years or more, keep it in index funds. Otherwise, treasuries.

Personally I tend to assume anyone talking about VTI knows about the risk-free rate.

Yeah, I would also assume that anyone talking about VTI wouldn't try to time the market, but that's what he was talking about so :shrug:

It’s such an obvious Ponzi scheme the companies should get delisted.

Just need a larger emergency fund to mitigate the risk, especially if you work in tech and you feel the crash would heavily impact your labor earnings (including possibly extended unemployment)

Market goes up when the dollar crashes you're fine

Historically even if you invest into index at the worst possible time (prior to a crash) and keep holding you still outperform inflation long term. Timing the market is impossible. Just keep an emergency fund in a money market or savings account and hold the rest.

There is no law that prices must revert to a mean.

The market can keep going up in dollar terms while losing real value if we enter a phase of high inflation.

already did mate, after Trumps first pump and dump with Iran

what's your risk tolerance?

> there is no way the market keeps going up.

There is no way the US’s leaders let the prices of publicly traded securities go down or even stagnate relative to the US dollar. These publicly traded securities make up a significant portion of the US leaders’ and most active voters’ assets, plus almost all state and local US governments depend on the securities’ price growth to meet their deferred compensation obligations.

The alternative to risk in US securities isn’t the USD, it’s a stake in other stable countries with resources.

Others have given practical replies, so here's a philosophical one: Sometimes it's just not practical to make much money from being right.

I want to acknowledge and empathize how much it sucks, while also putting it out there so that nobody suffers blaming themselves for something that might not be achievable.

Disclosure: I've been waiting-and-seeing too long myself, and I should probaby stop trying to time/strategize.

Nvidia had a free cash flow last quarter of $48.5 billion, a 36% quarter-over-quarter increase. $750B does not seem that huge in comparison. (Yes, the gravy train could theoretically stop anytime, but that still seems like a large but localized unwind rather than a wider economic crash.)

If you were NVDA and had that much cash on hand and wanted to grow your business, where would you put it?

https://archive.is/epMTs

They are just adding zeros to already obnoxious numbers that make no sense. The endgame is on.

If anything this means that the insane amounts spent on AI are just mostly virtual speculative stock deals and in reality the amount spent in AI is kinda normal.

It is far better for society when companies like Nvidia spend their money rather horde it like Apple.

Nobody (including the dragon) benefits from sitting on piles of gold.

Apple is a $5t company that has $45b cash-on-hand.

Your post is "cute", but 3 or 4 months of operating cash isn't a great example of "sitting on piles of gold".

can someone explain why this is actually bad?

nvidia spends X amount to invest in data centres or investments on the agreement that the counterparty spends Y amount back, the net delta is the actual amount of value being transferred aka Nvidia sells chips as usual despite the high numbers of X and Y?

The frontier labs do not have enough chips to meet demand, and AI demand is ferocious and climbing, so I'm not sure what the story is here

The problem is that when a vendor finances their customers, they can create the illusion of 'real' demand for their product, when most of the the end-users are only actually using something because it's cheap. When the vendor runs low on cash and starts requiring payment, the customer may not be able to afford it, taking both vendor and customer down, and leaving the end-users who have a real need, and were willing to pay sustainable prices without any options.

that makes sense to me in a conceptual sense

however inference is very profitable and plummeting in cost for a given point on the intelligence curve, and nvidia gpus can serve different models so they are protected post-buildout

You are describing the justification that NVDA is using to explain their behavior; they see it as something of a 'bridge-loan' until the LLM business model reaches steady-state. The problem is that this explanation has been used for many bubbles, where companies mis-categorize ongoing costs as one-time expenses.

> however inference is very profitable

Is there any actual evidence of that?

> however inference is very profitable

Is it? OpenAI and Anthropic are burning cash faster than anyone has ever shoveled cash into a furnace.

This was true about 18 months ago. It is no longer true.

its not so bad if the funds arent used to borrow 10x, and then spent entirely on nvidia chips.

Its bad if the expected demand is an illusion. For example, when a company builds out a data center they don't build it for demand today, they build it for the demand they expect when the data center is running and for how much they expect demand to grow over the lifetime of the data center (this is a simplification, they build a financial model of how they can grow capacity as demand increases over the lifetime of the data center). If the demand is lower than expected then the counterparty cannot spend that Y amount back. In other words, Nvidia now holds bad debt (really worthless equity since these aren't loans on paper). Furthermore, Nvidia has been making the same bet with multiple companies. That Y amount the counterparty can't pay back is probably correlated with all of the counterparties Nvidia lent X amount to. Suddenly this circular flywheel begins operating in reverse. Now Nvidia has no X amounts to lend to AI companies which makes their ability to pay back Nvidia worse which means Nvidia has less money to lend out and on and on.

There's other problems too, why do we think AI demand is ferocious right now? Nvidia's revenue is one of the biggest signals we use to determine that. Why is Nvidia's revenue so large? They're spending their revenue on more revenue. This process overinflates what AI demand might actually be.

The issue really boils down to that this is a risk that gets reported in a way that makes it look less risky than it really is and therefore actors make investment decisions that they might not otherwise make. Sure, it might work out. But if it doesn't, the pain could be way more painful than it looks on paper.

I imagine nvidia is securing these loans on the hardware being bought?

So if the company defaults they can take the GPUs and servers etc and sell those.

DRAM will get to the moon before we get ...

I guess it gets bigger with each passing day. Tens of billions goes to Hundreds of billions.

It has to get bigger. As soon as it starts shrinking, the next round of debt will no longer be able to cover the prior round of commitments. What is happening in AI is essentially a gigantic version of what is happening in consumer auto loans, they just keep refinancing for more and more money. Eventually there will be no one willing to lend them more, and then they'll go to the government to bail them out.

I'm not sure a government can bail out these irrational companies and have it not be political suicide.

I'd kill my political career for the private sector rewards sure to follow.

I meant more for the party in charge than any particular individual but I see that was not clear.

Those companies are already roundly hated by the general voting public, so I agree.

The public generally doesn't like banks and investment firms either, but they had bailouts in the past.

There's one problem with the idea of a bailout. What comes after?

Say, for the sake of argument, that the US government bails out OpenAI. Are they now suddenly not a money-burning operation anymore that will need another bail out in a period better measured in weeks?

The thing is just very unsustainable.

Yeah, I'm pretty sure we've already passed some sort of fiscal singularity where economic and political interests are so intertwined that there can only be growth. If there ever isn't growth, then the legislators (who are elected via corporate sponsorship) will pull whatever levers necessary to make sure that there will always be asset growth.

It's some sort of tragic positive feedback loop that isn't going to stop until the whole thing comes crashing down for everyone and we're paying $37,000 for a loaf of bread.

if demand for "safe" tokens explodes, this is a no brainier

if open source throws a wrench into the frontier revenue growth, then its gonna be biggest bubble explosion

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