I can understand how someone's approach can be "hack all the things", however, at some point you run into the fundamental boundaries of the box you are in and you can't hack your way around those.
Okay, that article is a little bit shallow. I just summarises the headlines of the last weeks of circular deals. But is there also a more in depth article that sheds a little more light onto what this actually means? From a financial perspective?
"You give me a million GPUs for free, I'll announce that you have sacrificed a million GPUs to the machine gods, and your stock price will spike 200 times the value of those GPUs."
I was at a bitcoin conference in 2018. One guy in the booth told me that the company had set up a $100M fund to fund startups that agreed to build apps on their blockchain. I wonder where they are now?
These kinds of deals were very much a la mode just prior to the .com crash. Companies would buy advertising, then the websites and ad agencies would buy their services and they'd spend it again on advertising. The end result is immense revenues without profits.
I’ve been listening to “The Smartest Guys In The Room” (the definitive book on Enron and their scandal) and one of the ways Enron continued to grow and grow is by setting up a really complicated system of moving debt onto equities off of their balance sheet.
While it was sorta legal (at the time) it was not ethical and led to a massive collapse of the #1 company at the time.
Makes you wonder if AI is in such a bubble. (It is).
Given that AI is a national security matter now, I'd expect the U.S.A to step in and rescue certain companies in the event of a crash. However, I'd give higher chances to NVIDIA than OpenAI. Weights are easily transferrable and the expertise is in the engineers, but ability to continue making advanced chips is not as easily transferred.
Here is a charitable perspective on what's happening:
- Nvidia has too much cash because of massive profits and has nowhere to reinvest them internally.
- Nvidia instead invests in other companies that use their gpus by providing them deals that must be spent on nvidia products.
- This accelerates the growth of these companies, drives further lock in to nvidia's platform, and gives nvidia an equity stake in these companies.
- Since growth for these companies is accelerated, future revenue will be brought forward for nvidia and since these investments must be spent on nvidia gpus it drives further lock in to their platform.
- Nvidia also benefits from growth due to the equity they own.
This is all dependent on token economics being or becoming profitable. Everything seems to indicate that once the models are trained, they are extremely profitable and that training is the big money drain. If these models become massively profitable (or at least break even) then I don't see how this doesn't benefit Nvidia massively.
This is such a strange article -- there's nothing particularly unusual going on here.
The first example basically stands in for all of them -- Microsoft invests $13B in OpenAI, and OpenAI spends $13B on Azure. This is literally just OpenAI purchasing Microsoft cloud usage with OpenAI's stock rather than its cash. There is nothing unusual, illicit, or deceptive about this. This is entirely normal. You can finance your spending through debt or equity. They're financing through equity, as most startups do, and they presumably get a better deal (better rates, more guaranteed access) via Microsoft than via other random investors and then buying the cloud compute retail from Microsoft.
This isn't deceiving any investors. This is all out in the open. And it's entirely normal business practice. Nothing of this is an indicator of a bubble or anything.
Or take the deal with Oracle -- Oracle is building data centers for OpenAI, with the guarantee that OpenAI will use them. That's just... a regular business deal. What is even newsworthy about this? NYT thinks these are "circular" deals, but by this logic every deal is a "circular" deal, because both sides benefit. This is just... normal capitalism.
Speedrunning to "too big to fail". Turn on the infinite money printers and feed them directly into Sam Altman's bank account or the Chinese/Russians/Iranians/Boogeymen will destroy us all.
Many here now didn't live through the dot-com bubble as an adult so can't really appreciate what it was like. The hype was something hard to describe. Financial analysts and journalists struggled to come up with ways to describe the health of these "companies". My favorite was what revenue multiple companies would trade it.
But the major takeaway was that almost none of these companies were real businesses. This is why I laughed at dot-com comparisons in the 2010s around the tech giants because Apple, Google, Microsoft, etc were money-printing machines on a scale we have trouble comprehending. That doesn't make them immune to economic struggles. Ad spending with Google will rise and fall with the economy.
OpenAI has a paper valuation in the hundreds of billions of dollars now and no prospect of a revenue model that will justify that for many, many years.
Currently, the hardware is a barrier to entry but that won't last. It has parallels in the dot-com era too when servers were expensive. The cost of training LLMs is (at least) halving every year. We're probably reaching the limits of what these transformers can do and we'll need another big breakthrough to improve.
OpenAI's moat is tenuous. Their value is in the model they don't release. But DeepSeek is a warning shot that it will be in somebody's geopolitical interest, probably China's, to prevent a US tech monopoly on AI.
If you look at these AI companies, so many of them are basically scams. I saw a video about a household humanoid robot that was, surprise surprise, just someone in a VR suit. Many cities have delivery drones now but somebody is remotely driving them.
I saw somebody float the theory that the super-profitable big tech companies are engaging in layoffs not because they don't need people but to pay for the GPUs. It's an interesting idea. A lot of these NVidia deals are just moving money around where NVidia comes out on top with a bunch of equity in these companies should they become trillion dollar companies.
Oh and take out data center building from the US economy and we're in recession. I do think this is a bubble and it will burst sooner rather than later.
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[ 0.26 ms ] story [ 43.6 ms ] threadWhile it was sorta legal (at the time) it was not ethical and led to a massive collapse of the #1 company at the time.
Makes you wonder if AI is in such a bubble. (It is).
- Nvidia has too much cash because of massive profits and has nowhere to reinvest them internally.
- Nvidia instead invests in other companies that use their gpus by providing them deals that must be spent on nvidia products.
- This accelerates the growth of these companies, drives further lock in to nvidia's platform, and gives nvidia an equity stake in these companies.
- Since growth for these companies is accelerated, future revenue will be brought forward for nvidia and since these investments must be spent on nvidia gpus it drives further lock in to their platform.
- Nvidia also benefits from growth due to the equity they own.
This is all dependent on token economics being or becoming profitable. Everything seems to indicate that once the models are trained, they are extremely profitable and that training is the big money drain. If these models become massively profitable (or at least break even) then I don't see how this doesn't benefit Nvidia massively.
The first example basically stands in for all of them -- Microsoft invests $13B in OpenAI, and OpenAI spends $13B on Azure. This is literally just OpenAI purchasing Microsoft cloud usage with OpenAI's stock rather than its cash. There is nothing unusual, illicit, or deceptive about this. This is entirely normal. You can finance your spending through debt or equity. They're financing through equity, as most startups do, and they presumably get a better deal (better rates, more guaranteed access) via Microsoft than via other random investors and then buying the cloud compute retail from Microsoft.
This isn't deceiving any investors. This is all out in the open. And it's entirely normal business practice. Nothing of this is an indicator of a bubble or anything.
Or take the deal with Oracle -- Oracle is building data centers for OpenAI, with the guarantee that OpenAI will use them. That's just... a regular business deal. What is even newsworthy about this? NYT thinks these are "circular" deals, but by this logic every deal is a "circular" deal, because both sides benefit. This is just... normal capitalism.
But the major takeaway was that almost none of these companies were real businesses. This is why I laughed at dot-com comparisons in the 2010s around the tech giants because Apple, Google, Microsoft, etc were money-printing machines on a scale we have trouble comprehending. That doesn't make them immune to economic struggles. Ad spending with Google will rise and fall with the economy.
OpenAI has a paper valuation in the hundreds of billions of dollars now and no prospect of a revenue model that will justify that for many, many years.
Currently, the hardware is a barrier to entry but that won't last. It has parallels in the dot-com era too when servers were expensive. The cost of training LLMs is (at least) halving every year. We're probably reaching the limits of what these transformers can do and we'll need another big breakthrough to improve.
OpenAI's moat is tenuous. Their value is in the model they don't release. But DeepSeek is a warning shot that it will be in somebody's geopolitical interest, probably China's, to prevent a US tech monopoly on AI.
If you look at these AI companies, so many of them are basically scams. I saw a video about a household humanoid robot that was, surprise surprise, just someone in a VR suit. Many cities have delivery drones now but somebody is remotely driving them.
I saw somebody float the theory that the super-profitable big tech companies are engaging in layoffs not because they don't need people but to pay for the GPUs. It's an interesting idea. A lot of these NVidia deals are just moving money around where NVidia comes out on top with a bunch of equity in these companies should they become trillion dollar companies.
Oh and take out data center building from the US economy and we're in recession. I do think this is a bubble and it will burst sooner rather than later.
https://www.theregister.com/2025/10/29/microsoft_earnings_q1...
Microsoft seemingly just revealed that OpenAI lost $11.5B last quarter