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Comment by consumer451 | Hacker News Reader

I have not been paying much attention to the whole circular deal thing that NVIDIA is supposedly doing. As in, they invest in their clients, who buy their products.

Can anyone who actually understands finance please explain a couple things to me?

1. Are those accusations are true in a significant way, and are actually a bad thing?

2. This claimed $673B in sales, how much of it comes from NVIDIA's own money, invested into their clients? Is there any way to know that?

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If we assume they've invested up to $70B in other companies, which is the estimated value of their equity investments, then that implies that a maximum of 10% of that estimated revenue demand is coming directly circularly... and that assumes these companies spend the entirety of their invested capital on Nvidia infr in one year which seems unlikely so probably much lower.

Still that's not to say these companies aren't leveraging the Nvidia capital with others' in a way that magnifies or multiplies some of the effect.

But it looks like a second order contributor unless Nvidia's actions are acting like a backstop that causes way more risk and leverage to pile up in a way that could come tumbling down

What do you mean by “if true”? It’s a fact. It’s “only” bad if what they’re investing in goes south, because NVIDIA gets hit twice: it loses money on the investment and loses the GPU demand.

NVIDIA says it has invested nearly $50B in frontier labs. According to NVIDIA, “the AI labs for which NVIDIA expects to leverage its balance sheet should account for roughly one-quarter of NVIDIA’s business next year.”

To be clear, this doesn’t mean 1/4 of $673B is NVIDIA money.

I didn't take enough time to be clear. What I really meant was something like: are they giving these companies money to directly buy their own products, or to spend on other things, so that they can grow enough to be able to buy NVIDIA products?

I am not sure if the distinction makes a difference, but the latter sounds a lot more reasonable to me.

I understand it is the former. They basically give money to be spent on compute, meaning it goes to hyperscalers who themselves buy NVIDIA GPUs. That’s how you end up with OpenAI and Anthropic together representing more than 70% of the hyperscalers AI revenue, and >40% of the overall Google cloud revenue.

Another thing NVIDIA does: when hyperscalers are looking for debt to build more datacenter capacity, NVIDIA offers to be a backstop in case the compute isn’t actually used. If we take CoreWeave for example, NVIDIA has ownership in it, and also sell them GPUs, and also goes to the banks telling them they will for sure buy the unused capacity as a way to reduce the bank risks.

So you can add that to the whole circular thing

The distinction does make a difference and it is the former.

These circular deals are two paired transactions:

1. Nvidia buys equity in an AI lab or cloud provider with cash.

2. The counterparty agrees to buy X number of GPUs from Nvidia and in exchange Nvidia guarantees to rent some Y fraction of the compute if the counterparty cannot find customers.

This structure goes south during a pullback because all this liquidity Nvidia is essentially providing vanishes and contracts rapidly if the counterparty cannot find customers.

The other circular deal type is via private equity and the Special Purpose Vehicle (SPV).

1. The private equity firm loans money to the SPV.

2. The SPV buys GPUs from Nvidia for a data center.

3. Nvidia guarantees to the private equity firm residual value of the GPU which lowers the risk for the lender.

This deal also breaks down if the demand for GPU compute never materializes because now Nvidia is on the hook to the private equity firm (the lender) for the residual value of the GPU, which again saps Nvidia's liquidity.

Basically these deals are extremely sharp double edged swords. As long as demand for compute outpaces the compute capacity Nvidia can provide, Nvidia's revenues grow exponentially. But if demand growth slows, stops, or goes negative, Nvidia is suddenly on the hook for their counterparties' losses. Suddenly Nvidia's cash flow goes extremely negative and the company's financial situation becomes dicey.

The 1 and 2 you listed can be summarized as client buys Nvidia GPUs with equity instead of cash. Clients like Anthropic or OpenAI are not exactly flush with cash right now, so such sn arrangement makes sense. Plus, it reduces Nvidia’s incentive to invest in training a frontier-level Nemotron model.

If they were buying GPUs with equity then it wouldn't show up on Nvidia's quarterly report as revenue, even if the net trade is GPUs for equity. This is the point of the structure, to make cash flows show up as top line revenue. Furthermore, the structure pushes the liabilities off-balance sheet. This means if the flows slow down, in-flows rapidly become out-flows as Nvidia has to cover its liabilities. This is the problem with the trade, it puts everything on a knife's edge.

NVIDIA explicitly says the purpose is to relieve the labs’ capital/credit constraint on acquiring compute.

On paper it’s “capital to spend on whatever helps them grow.” In practice, their growth requires enormous amounts of compute, so it’s pretty close to “Here's more money so you can acquire more compute [silent part: much of it from us].”

It’s not a fact because the “circular financing” numbers don’t match at all up with Nvidia’s revenue.

Also if you think about this for anymore than a few milliseconds you realize that if Nvidia was giving away 90B to get back 90B in revenue, then none of the capex spend being reported by the hyperscalers would make any sense.

We know that Google, Meta, SpaceX, Microsoft, Nebius, CoreWeave, Amazon, are all buying huge amounts of Nvidia chips, with their own money!

This is all public info. The amounts of money Nvidia has invested in companies are tiny in comparison with their own revenue.

The amounts of “circular financing” are a drop in the bucket compared to, surprise, actual companies buying their product.

They've all had multi-billion bond issues in 2026 so I wouldn't exactly call it "their" money.

If I give you 10 dollars, and then you put it in your pocket, and then you take it out again and give me 10 dollars back - no actual economic growth occurred. It's simply shuffling money around; the amount stays the same.

But it’s not just dollars changing hands. If I invest N dollars in your hot-dog business, and you use some of that capital to buy equipment from me, I get revenue from the sale, and I still own an investment in your business. If you succeed, that investment can also make me money.

Two economists are walking down a forest path and they come across a piece of animal excrement. The first economist turns to the second and says "I'll give you $100 to eat that!" The second one eats it and the first one gives him $100. They start walking again and a few minutes later they come to another piece of animal excrement. The second economist now looks at the first and says "I'll give you $100 to eat!" The first one eats it and collects his money.

They walk a bit more and the first one says, "You know, I gave you $100 to eat shit, and you gave me the same $100 to eat shit. I can't help but think we both just ate shit for nothing." The second one responds, "That's not true at all! We increased the GDP by $200!"

This is basically true for any entertainment.

Great argument ... but if you apply it to the world as a whole, this is obviously exactly what happens.

Even within one country, this should be 99% of what happens, onless it's an oil producer or something like that.

It's not an argument, it's a joke. And the crux of why it's not a real argument is if you're willing to do Job X for $N, there is basically no scenario in which you're also willing to pay $N out of your own pocket for someone else to do Job X.

Wrong framing.

Nvidia is investing - it is using its shareholder's cash under the assumption it will create value for them.

If I loan you 10 dollars at 50% interest rate and then you use the 10 dollars to buy a product I am selling and you proceed to make $11 billion dollars with that product, you just made $11 billion dollars from $10 investment and I made $5 - not bad

I posted this article a few days ago which goes into a lot of the details of the recent round of proxy borrowing that Nvidia went through with several large banks: https://www.sascha-steffen.de/updates/nvidia-500bn-ai-financ... https://news.ycombinator.com/item?id=49447878

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