Reducing circular financing agreements seems like ... a good idea?
> in response to which Huang allegedly lay into Kress, calling her a "deer in the headlights,"
see: circular financing agreements
I also feel this is a good thing. Looks like the elephants in the room are being addressed.
Over the course of the meeting, he proceeded to tear into the woman who is now taking over for him as Nvidia CEO.
Colette Kress was "a deer in the headlights," he said, interrupting her presentation, according to a person familiar with the comments.
He had summoned Kress and his senior finance team to diagnose a ballooning problem: Nvidia was in talks to provide billions of dollars of guarantees to companies that couldn't afford its chips. That included deals led by Huang's son-in-law, Nico Caprez, who had been offering upstart cloud providers and data-center developers financing in the hopes of turning them into long-term customers.
Huang had launched a dealmaking spree and was now starting to question whether it had gone too far, according to people familiar with the matter.
Kress was a "reporting CFO," not someone who could help him define a strategy or make decisions, Huang said during the August meeting.
I’m so ready this time, CFO at the helm
One problem is that there isn't one number that indicates what percentage of Nvidia's equity investments come back to it in the form of chip purchases. In some cases, it appears it's 100%; in others, it has been suggested that every $1 invested produces >$3 in revenue. $1 invested for $1 in revenue versus $1 invested for $3 in revenue are really different outcomes.
There are also the questions of the revenue and revenue quality of the companies Nvidia has invested in, how much debt they've taken on, what sort of backstops/guarantees Nvidia has given them, etc.
And why couldn't a single number be calculated for this? They know their portfolio companies, their investment amounts, and the portfolio company purchases of their products.
> There are also the questions of the revenue and revenue quality of the companies Nvidia has invested in, how much debt they've taken on, what sort of backstops/guarantees Nvidia has given them, etc.
These are generally good things to look at for all corporate investments.
The main takeaway is that Nvidia investing in their own customers isn't inherently a bad thing. Investing in a poorly performing company is a bad thing.
They probably could calculate it but they're not required to and, if we're being honest, they probably don't have an incentive to.
> These are generally good things to look at for all corporate investments.
They are, but the issue with Nvidia is that the web of customer relationships, equity investments, financing, backstops, etc. is very hard to untangle. Not every counterparty is publicly-traded, and even when they are, not every aspect of their business that would go into this sort of due diligence is necessarily required to be reported.
What seems to be the problem?
Some of the deals look really good on paper, and others look like $1 in equity investment produces $1 in revenue.
You also need to factor in whatever non-equity financing Nvidia extends to these buyers, how much debt they've raised from lenders and what backstops Nvidia has committed to.
Investing a bunch of money in a company that is heavily indebted, and committing yourself to buying significant amounts of any unsold compute might not be so smart, especially if that company has only one or two big customers.
So this is the real problem with Nvidia: it has all these deals, some of which might be totally sensible and others that might be WTF, and it's really hard for investors to figure out what the "portfolio" looks like overall.
It doesn't make recurring revenue, either. Not without fresh cash infusions into all the startups.
Largely means P/E is a useless metric here, investors don't get to see their short term net profits, and even if they do see it, those don't extrapolate to future years/decades.
We've got a lot of investors out there not thinking about this with a level head, they just see %%% growth and a "low" P/E.
I know people that dont even know what P/E or market cap means but purchase stocks based on ticker price. They think <$100 means a good deal for a big company. Should stock splits be forbidden to protect them?