> Nvidia knows it is going to sell 100% of its inventory
Isn’t the entire problem here that they don’t know, and they haven’t?
The neoclouds ensure there will be consistent demand of Nvidia GPUs even after everyone big moves to their own custom ASICs
It could be these chips [1] which they are trying to offload to someone else.
[1] https://shattered.io/amazon-8-billion-nvidia-chip-leaseback-...
GPU supply isn’t the constraint; datacenter space is. And that means Nvidia might not normally be able to sell all that they’d like even with seeming high demand.
I don't deal with their big customers, but the idea that NVIDIA doesn't have customers ready to spend $$$$ to get some GPU in their datacenter is proveably false. It's likely easier for them to handle big transactions for big customers, but there's also a loooong tail of customers in line for a smaller piece of the pie.
Yes the prices are eye popping at times, but with money in hand newegg claims delivery by about dec 8.
Many people are deploying and using this new technology for very productive ways. That’s why Anthropic revenue is so impressive.
There is a very large cohort of reasonable educated and articulate humans how are having problems processing this situation in some deep way that has them insisting there is a bubble or something fraudulent or broken, of course there probably will be to a certain extent and they will claim “see we were right” but even if that happens there is incredible rapid progress that is real, tangible, backed by real money and spending, and real productivity.
Anyway, going back to my desk now and steering LLMs on a code base created in 36 hours that is equivalent to 10-20 man years of work just 4 years ago, but sure “it’s all a bubble”, and like you said tell that to everyone in-line around the block who knows what’s really happening.
Yes, there is massive fraud and circular financing happening around it, and the above is just one of three ways it’s happening.
Sure, that’s a comparison.
To argue that demand for their chips & systems now is fraudulent is coo coo Cocoa Puffs.
World War? Investments wiped out by speculative financing on data centers and inference deals? Global financial restructuring?
For companies like Anthropic a big risk is commoditization—the risk that open weight models get good enough that a lot of people don’t need an expensive subscription.
While you are right, I think the elephant in the room is that they are rightly concerned about the ethical issues, namely the ecological and economic impacts.
That's one way to say, "maintain a monopoly where everyone needs you and you depend on no one."
Well funded hyperscalers are trying to reduce dependence on Nvidia. And Nvidia is conversely trying to push into cloud with these credit backstop/revenue sharing deals.
It does make them even more leveraged to the bubble though. If a neo cloud collapses, they're lose customers and gain debt collectors. It's a sound business strategy until it isn't. It's not good risk management, but then you don't become the world's largest company by making safe bets.
Making a large number of very risky bets on small startups is how venture capital works. Most will fail, hopefully a few will make up for that.
So yeah if it goes tits up, they loose customers, but they’re customers that wouldn’t exist otherwise, and they can easily pay to make the debt collectors go away. But if it’s anything except a complete collapse, then they’ve grown the customer base for their products long term, and hedged against hyper scalers replacing them with custom silicon.
At the moment it looks like the downside risk is limited, and in the worse case, tolerable, whereas the upside is unbounded. Those are really good bets to be placing, the only trade-off is opportunity cost. But even there, what other opportunities could Nvidia be deploying their cash into, beyond share buybacks?
> they can easily pay to make the debt collectors go away.
Sure, if it didn't come at the same time as all their other customers pulling back, and lots of other debt collectors simultaneously knocking on the door, and a spike in the cost of capital (read: stock starts crashing).
“He’s a better businessperson than all of you,” Huang told the cloud computing CEOs. The soup-man doesn’t sell out all his inventory to one or two customers, but instead keeps prices high and his customer base diverse, the CEO said.
“You are not establishing the value of my products,” he said.
That is, Jensen is going to the TSMC soup seller and saying “I’ll buy 80% of all your soup for twice the price because people are willing to pay 10x that with my ramen noodles in it.” And TSMC being the real bottleneck in this industry, knows there’s really nowhere else for its other customers to go. It of course, wants to keep all customers happy… but some will get much more soup than others.
This is probably a huge factor in keeping their advantage over their customers and competitors (but I repeat myself.) That is, TPUs and Trainium etc simply cannot acquire the necessary volume of chips at a competitive enough price-point to put a dent in Nvidia’s grip on the market. But the hyperscalers need all that compute NOW NOW NOW, so they have no choice but to turn around and begrudgingly pay Nvidia for that supply. Which puts more cash flow in Nvidia’s pocket, which buys them more soup, and on this loop continues.
What you're describing is the belief that they'll always sell their GPUs for a profit, so it doesn't matter what rules of accounting they violate _today_ because they'll be effectively more valuable _tomorrow_.
The same way an effective Altruist will poison a town's water supply if it grants them billions of dollars in the future and allows them to buy the town bottled water at some interdeterminate point in the future.
It boils down to the belief over reality, and feelings over facts; essentially, you're saying "as long as their intentions were good (gpus for everyone), it doesn't matter how much they hurt everyone"
‘Circular financing’ sounds sinister but customer financing and vertical investments aren’t strange or uncommon. It could be bad for sure. But it is not like they invented a new form of wickedness.
Sure they have customers pounding at their door for more product. At some point the hype machine stops and new neocloud startups can't get funding because its too expensive or banks don't trust them. Then what happens? The circular financing starts to unwind itself and NVidia is the "bag holder". If you look up Lucent or Nortel this happened to them during the dot com boom. There is a positive difference here with NVidia, they have so much demand and usage this can probably go on for a while. Lucent and Nortel were bit by dark fiber and the usage/demand just wasn't there.
If Jensen at the helm of NVidia is bullying/convincing companies into purchasing more than they need, financing it, etc. and creating the hype machine himself and NewCEO ain't going to play that game, then it could be an end to the circular financing.
Parent said "startups".
It is easy, but closer to "going to the gas station and buying lottery tickets"-easy.
"dealer financing" is an umbrella term for the dealer's finance office acting as a "loan broker" and shop around the customer's credit profile to find any bank willing to lend the money. The eventual underwriter for the loan may be the auto manufacturer's finance arm (e.g. General Motors Financial subsidiary or Toyota Motor Credit, etc) ... or ... it may be a non-automaker bank such as Chase or Capital One. Whichever one the customer ends up with depends on the particular credit score.
None of those financial entities are making car loans as a "loss leader". It's the reverse situation where both the dealer and the underwriting bank make money and the interest rates are high enough such that the banks pay kickback commissions to the dealer for funneling the loan to them.
A more accurate way of saying this is that the dealer is using incentive money to buy points (as is available in the mortgage market). You can ask dealer to apply that to the price of the vehicle instead. Many dealers already offer that kind of choice in their advertisements already (cash bank or no interest financing). Which way works out better for you depends on the terms of the loan etc. It's all the same to the dealer though.
Another trick in the industry, is the "price the dealer pays". This is mischievous, as the dealer does indeed pay that price for the car. However, they receive incentives quite often, in terms of kickbacks for sales made. So they dealer can gleefully say "This is what we paid for the car", whilst in parallel not indicate "Well, we received $5k as a kickback from the manufacturer later".
The manufacturer often also has monthly blitzes, discounts of the month, which the dealer will not really inform you of. After all, that's extra profit if they can trick you into paying full price.
In the early days of the internet, there used to be excellent services to discover all the discounts the dealers had, so you could a proper assessment of their actual cost. Thus, you'd be able to haggle with both eyes open.
For Canadians, The Automobile Protection Association (APA), https://apa.ca/ is legit, and offers such a service for a fee. Not sure what Americans might have. Or who to trust there.
Knowing what the car actually costs the dealer, is immense power when negotiating.
In your example, random customers are shopping at Ford.
In the article, Nvidia is creating the customers, and those customers are then engaging in the scenario you described with the automobile financing.
Nvidia is doing what you describe...plus they're artificially creating the customers who are buying from them, to make other customers want to buy from them.
So it's everything you describe plus a whole additional abstraction of AI...artificially in-demand
Not saying its good! Just OK under US law and sometimes help companies grow.
I think what makes this tough to be objective about is there is so much about this that is tied to things people hate: AI, tech, obscene wealth, poor regulation. I 100% agree but I do doubt the demand for AI is artificial.
The Sherman Antitrust Act (Section 1). Did Nvidia allegedly engineered scarcity by funding AI startups to buy its GPUs ?
monopsony - a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers
And clearly one of the building blocks of inequality, power, and monopolization.
That is precisely the opposite conclusion to the linked article though! They aren't "forgoing profits" if supply is constrained. Increasing demand increases prices and thus increases[1] profits. Which of course is exactly what we've seen in the market.
Your point would only work in an efficient market where they had competitors who would take the sale otherwise.
Basically: trying to sell this as NVIDIA being a Good Market Citizen and making sure everyone gets a chip is... well, it's kinda naive. No, they're really obviously making an extra buck on the market they already cornered.
[1] Superlinearly even, since the companies they fund can drive further investment based on the whale they landed.
And I am just happy this being top comment shows there are silent majority upvoting and sanity prevails.
And it pisses me off the media are all trying to spin it as fraud.
The other upside is having that equity be counted as capital appreciation in their balance sheet. Even if it's essentially paper loss due to volatility.
The WSJ article is basically saying the opposite. The hyperscalers are making their own chips and they are buying less from Nvidia.
This is my comment in another part of this thread
https://news.ycombinator.com/item?id=50493251#50496483
> Then he went on to describe the situation the company was in. Major cloud providers were running away from Nvidia, making plans to use alternative chips and lessen their reliance on the firm. Even worse, Huang said, the vast supply of chip wafers and memory Nvidia had committed to buying were coming at him like an “avalanche.”
Jensen's son-in-law was making these vendor financed deals and Kress the CFO now interim CEO was against them.
Large customers like Nvidia and Apple want billions of chips. TSMC can't just ramp up and down instantly. It takes 3+ years and $30 billion to build a modern fab. So TSMC has contracts where you are commiting to buy the wafers for years in advance.
I've worked for multiple fabless chip companies that use TSMC to manufacture. Amazon, Google, Microsoft, and the other big hyperscalers are making their own AI chips to move away from Nvidia. The startups like OpenAI are doing the same so the real demand for Nvidia chips is dropping. But Nvidia can't easily get out of the contracts with TSMC to manufacture and buy the chips. They would probably have multi billion penalties that would show up on their financial statements.
Some people think Nvidia is acting as a VC fund for AI startups but my view is that Jensen freaked out about the dropping demand for Nvidia chips. So he is funding these startups with circular finance deals to buy the Nvidia chips that he can't sell to the hyperscalers anymore.
https://archive.is/20261113091227/https://www.wsj.com/tech/j...
Is this Jensens “Delorean cocaine” ?
Google and Amazon at least are making their own TPU silicon: Google TPUs, Amazon Trainium I think (goofy name), etc. They're big enough to make their own chips.
Apple is putting their own in-house AI accelerators into their laptops, desktops, and phones for edge inference and the local inference market.
Meanwhile AMD and Intel have GPU offerings. AMD's chips are probably as good as Nvidia, but their software is not... but software is exactly the moat that is vanishing due to AI. Intel's GPUs are mid but are priced aggressively. I actually picked up an Arc with 16G RAM for a very reasonable price to run local experiments and it works great... and I was able to fix the software rough edges with the Intel Arc with Claude Sonnet 5.5. "Hey Claude, take a look at this code... it's not performing well on this system's GPU. Please make a plan to fix..."
I don't think Nvidia's lead is as big as it might think it is.
AI can write great code, but the competition's hardware won't succeed until someone comes up with a CUDA replacement.
It’s hard to talk about AI economics while looking at NVidia’s margins.
Is it really a conspiracy theory to think this level of circular financing is suspect? Prominent journalists and economists seem to think it is suspect.
A very similar thing happened to Sun during the dot com boom. All of these start ups were scrambling for Sun servers, and when the bubble burst, not only was the market flooded with lightly-used secondhand servers, but cheaper alternatives grew market share at the expense of Sun's expensive products.
Even if you believe in all the super AI and magic that is coming, I still don't see how you avoid a big shakeout (which has occurred in basically every historical boom: railroads, cars, PCs, dot com, etc.) that drastically reduces the number of NVidia customers.
And it's totally fine if someone hasn't heard it before. That's why we read comments in places like HN. To learn.
Because of bottlenecks in the supply chain, NVIDIA knows it is going to sell 100% of its inventory. They could raise prices quite a bit more, but then their only customers would be hyperscalers (building competing chips) and possibly OpenAI and Anthropic. NVIDIA is willing to forgo present day profits for the strategic value of keeping its customer base diverse and promoting the network effects of e.g. CUDA. Instead of quoting a lower price per GPU to neoclouds and startups, they finance purchases of chips, but the two are roughly equivalent (financing means NVIDIA takes on more risk, but has more upside and locks in future demand). It is in their commercial interest to have many competing buyers of their chips.
Obviously this creates fun mechanisms for fraud and wacky accounting (and I'm agnostic as to whether that's happening here), but it's worth knowing about the boring/obvious story before donning your tinfoil hat.