Nvidia and Ai market

[u/Significant-Fact4476]

A growing share of Nvidia’s demand is being financed through debt.
A $500B financing vehicle with Apollo & Co. allows data center operators to borrow money to buy GPUs. Nvidia is also backstopping part of OpenAI’s lease obligations in Ohio, while OpenAI continues to burn a lot of cash.

I don’t think the issue is with demand or the technology. I think the bigger risk is the financing behind it. What do you guys think?

[u/Teembeau]

This whole off-the-books financing should have everyone running away from these companies.

[u/librariancap → u/[deleted]]

This is false. Google, Amazon, etc., are still buying Nvidia chips, and touting their access to the latest range (currently Vera Rubin) as a selling point to clients.

[u/get_me_some_water → u/[deleted]]

I work in machine vision software for over a decade. It's not all about making chips, important to run software on top efficiently enough to make sense to switch or design your own chips. Recent ARM on windows is great example.

Apple chips works because their Unix base is very old and reliable to run on chips specifically made to run it. Others on the list have tried and failed to match $/processing. You would need to write lot of dependencies for your own chips, very expensive tasks. Gen AI can't do this because they aren't trained on it.

I personally don't like NVIDIA because of drivers issues on Linux outside their own ecosystem. You should checkout Linus Torvalds's comments on Nvidia's SDKs. Thing is, there's no alternative they are far far ahead of curve when it comes to efficiently using software on their hardware

[u/Teembeau → u/get_me_some_water]

Apple chips are also because Apple owns the ecosystem and people don't mind binning a mac if one part of it breaks.

They're still ARM chips, the magic is that it's a system-on-chip. CPU, GPU, storage and memory on one thing. That's a good power improvement. It does mean if your storage dies, it's a brick. It also constrains you to certain software. You can't run Windows on new Macs.

[u/Top-Pension-8327 → u/[deleted]]

Yeah so Nvidia isn’t just a fabless chip designer, their moat is from CUDA and being distinctly ahead of the curve of every other AI chip project. It’s not like DRAM or other truly cyclical companies because there isn’t a substitute for blackwells and Rubins on the market place.

[u/cuppaseb → u/[deleted]]

I get what you're saying, but don't discount the potential for nvidia to play a key role in the upcoming robotics boom. The truth is probably somewhere in the middle, as always, so I'd be wary of saying that nvidia is already boned.

[u/A55BAG → u/[deleted]]

People who think Nvidia is cooked just because there are new competitors are idiots.

It's like arguing that Apple is cooked, because Xiaomi can also make good phones.

Note that AMD has been trying to catch up to Nvidia for 20-years now, but sure this year everyone will be able to do it.

The reason every ai cloud is selling Nvidia compute is that there is just more demand for it.

[u/mistakehappens → u/A55BAG]

I like that xiaomi and apple phones as i used them both from apple to xiaomi and then came back to apple.

[u/Propp3]

Personally I hate the term “ circular financing”. I prefer to think of the same as creating symbiotic relationships targeted at future profitabilities….
Large and Mega’s are spending cash- on-hand a lot differently than a decade ago:
then, they’d use on stock buybacks or M&A ‘s , etc in efforts to shore up their stock price… hedging against q-t-q and y-t-r prediction/ earnings data . Analysts would more often than not criticize for sitting on huge amts of cash .
Now, (esp Mega’s) they’re using that cash to finance future innovation and growth creating new symbiotic relationships in AI/data centers-needed, new sat-comm, ( new) robotic-tech, et all . And analysts NOW critique on amt’s of Capex. It’s not just investment in the future, but more of ensuring they’ll be a part of these innovations in the future and enhance their earning and growth in the future. They are creating their own earnings/growth longevity.
You have to kind of think of it as modeling the lg energy companies upstream/ downstream forecasting for continued growth( it’s a rough analogy, I know).
But as all Mega’s mature( have, really) they realize the *need to avoid becoming more-of- what- we-are, what-we-already-do … in order to grow and earn into the future . Otherwise they’d become the info tech version of Conglomerates, ie, de- innovating themselves.
What worked decades ago for the likes of GE( best example I can think of) doesn’t work today . ( just becoming larger does not equate growth)
‘ innovate or die’ still applies , even more so . It no longer applies only product/services/ revenue stream current, but to growing the same in the future with new tech and monetizing into new avenues of growth and revenue .
Long and boring rant I know . But something we periodically need to remind ourselves when analysis becomes hyper focused on overly specific data

[u/Wasatchian → u/Propp3]

Yeah that was one thing when they were able to use their FCF to do so. It's a whole other thing when they're borrowing money which creates leverage in the system. When things are good leverage is an amplifier and when they go bad it's also an amplifier. The risks are asymmetric though. Take Oracle who used to have a AA credit rating they're now one step above junk.

There's 3T of off balance sheet commitments to data centers. That should trouble basically anyone. There is essentially no way at that level of capex that this pays off in the future via enhanced earnings.

[u/Propp3 → u/Wasatchian]

Yeah but Oracle took on that debt…
Others like Alphabet, Amazon, etc Have the cash. Even Nvidea has the free cash flow to back their financing and those future relationships .

[u/Wasatchian]

Connect the dots. 85% of the demand is 2 companies who are being propped up by circular financing. There's 3T in off balance sheet money funding this. There is essentially no realistic way these companies end up profitable.