When NVidia unravels from the current state of the market I'd gather it's going to be a phenomenal source of data to study with respect to the questionable economics propping all of this up today. Curious if Jensen actually believes he's going to outrun this train or if he thinks that spreading his chips out keeps him from a worse demise.
Yes. All these companies making "investments" in each other, where company A puts 10 billion into company B and company B buys 10 billion of company A's products can't work out well in the end. This is separate from the concept that AI has real value. Pointing out the likely doomed to fail huge mutual investments is a separate issue. We can have two ideas in mind about something.
I am worried about the damage when this ends. Sure, there's way over exuberance in my opinion about the value of all this vast amount of spending and infrastructure (datacenters, billions or trillions more in training hardware from nvidia etc). But there's this other completely bonkers level where it's just normal to give some billions for some stock and they turn around buy billions of your stuff.
Does it, though? Tesla stock hasn’t run into reality yet. All that’s required to avoid reality is for enough people to keep believing believing the lie. If a bunch of big companies all invest in each other and never sell, then wouldn’t it prop up the whole thing and the valuation stays high?
I’m open to ideas
at this valuation there's literally no other option than to spread it around. it's literally the only sane move. otherwise it would not only take balls of steel but also board's approval.
I wonder how much Jensen has managed to liquidate. For me currently obvious strategy would be to pump things as high as they can while unloading stock holdings as is possible without looking too bad.
The current state of the market is primarily funneling VC cash to Nvidia. NV is also holding lots of stock in various companies, most of which is probably going to go to zero, but that won't hurt the company in any meaningful way.
After the bubble pops, NV will not be valued anywhere near where it is today, but JHH has put a lot of work in to make sure that at the end of the day, he is not the person holding the bag. At the end of last quarter, the company had 16B more cash in the bank than the sum of their liabilities. All this weird financing is on top of that. If the market collapsed today, and all AI companies stock went to zero, and all existing AI GPUs became worthless overnight, NVidia would take a >$100B accounting loss, but their balance sheet would remain tens of billions on the positive, and on the following quarter they would again be profitable as a gaming GPU manufacturer.
What NV is doing is extracting as much of the VC investment aimed at AI into the company as possible, and preferring to take a portion of the sale price of the GPUs (on which they have 75% gross margins, which is, well, gross, given that it's a physical product that contains a lot of very expensive components that came from third parties) as stock of the company they are selling to in a circular financing deal, just to have the lottery ticket in case the customer wins big.
For all the young people - you can find near exact clone copies of this comment every day, every month, from the last 20 years. Different poster each time, different company name each time, always the same great doom and gloom predictions. They're even remotely correct maybe 0.01% of the time. Heck, half of the time lately they're not even authentic people posting their thoughts, often they're foreign agents using the internet and anonymous communication to intentionally spread fear, uncertainty, and doubt about a rival country's economy, to weaken it.
We had the dot com crash around 2000. Tons of companies died, but plenty of that infrastructure was still used, we built better internet connections across the country etc, that was good later. But so many companies died like pets.com. The investors in those companies lost a lot - and also, a book company survived and became one of the most valuable companies and a tech leader - I'm talking about amazon.
So some of these companies will surivive but a ton will die or at the very least their investors will lose a lot of money.
I am worried about the damage when this ends. Sure, there's way over exuberance in my opinion about the value of all this vast amount of spending and infrastructure (datacenters, billions or trillions more in training hardware from nvidia etc). But there's this other completely bonkers level where it's just normal to give some billions for some stock and they turn around buy billions of your stuff.
This has to run into reality at some point.
There’s a point where if you ask to be paid a billion dollars for something that is worthless, people just laugh at you.
Until the next transaction you can keep pretending the old inflated valuation is real, but you can raise capital, not without popping the bubble.
At some point people will stop giving Tesla and NVIDIA more money.
They do what everyone in their position would do. What matters are the boxes leaving the warehouse. Dozens of thousands of them.
After the bubble pops, NV will not be valued anywhere near where it is today, but JHH has put a lot of work in to make sure that at the end of the day, he is not the person holding the bag. At the end of last quarter, the company had 16B more cash in the bank than the sum of their liabilities. All this weird financing is on top of that. If the market collapsed today, and all AI companies stock went to zero, and all existing AI GPUs became worthless overnight, NVidia would take a >$100B accounting loss, but their balance sheet would remain tens of billions on the positive, and on the following quarter they would again be profitable as a gaming GPU manufacturer.
What NV is doing is extracting as much of the VC investment aimed at AI into the company as possible, and preferring to take a portion of the sale price of the GPUs (on which they have 75% gross margins, which is, well, gross, given that it's a physical product that contains a lot of very expensive components that came from third parties) as stock of the company they are selling to in a circular financing deal, just to have the lottery ticket in case the customer wins big.
So some of these companies will surivive but a ton will die or at the very least their investors will lose a lot of money.