These deals all look like classic “round tripping.” Is there any evidence that this activity is generating actual net new $ that didn’t exist previously?
Amazon’s recent earnings was full of apparent round tripping.
1. Amazon “invests” in Anthropic (cost)
2. Anthropic takes that money and buys AWS (same dollars come back as revenue)
3. Amazon builds big datacenter for Anthropic (cost)
4. Amazon records a large paper “profit” because the value of the Anthropic “investment” went up after all the stuff it’s doing with the “investment” from Amazon
Meanwhile none of the above appears to actually be making any actual profit in terms of revenues > costs.
It’s bonkers. These are the same sort of shenanigans that were going on with infrastructure prior to the .com implosion. Did we learn nothing?
Access to infrastructure is a core part of the AI business.
If you are a startup, and you want to buy AI infrastructure, you would typically sell equity to a VC and use that money to buy infrastructure.
If the AI infrastructure vendor would offer to buy that equity, rather than a VC, that’s preferable because you may get ongoing special treatment from the vendor once they have a stake. So it’ a great deal for the startup.
For the infra vendor- you can likely get a good deal on the investment, you get some exposure to higher upside, and it may be useful to manage your cash flow.
Seems like strategic high value moves to me. It’s no wonder the market likes it
The problem is that no 3rd party seems willing to just invest cash because they believe these companies are currently a good investment. That’s what’s raising alarm bells.
I’m not disagreeing, but do the AI companies want cash? If their main expenditure is infra, maybe they’re only seeking investment from AWS/Azure/GCP etc. How would an extra billion from the Saudis buy them that a billion from Amazon wouldn’t?
I’m not a fan of round tripping by any means. Just wondering if what you’re saying is true.
Why would AI companies prefer $1 billion of Nvidia credits over $1 billion cash?
Liquidity preference.
This might be a bit too convoluted, but here is a way to get straight to the point. Assume there is a perfectly liquid asset and its nominal value is $1 million. Now imagine you have stocks that are worth $1 million, but the market price fluctuates over time.
The market price of the perfectly liquid asset is always the mean, the variance is zero. The value of the stock follows a probability distribution, e.g. a Gaussian distribution. The mean is the same, but the variance means that you can't just sell the asset at any time you want.
Even when the nominal value is the same, people prefer more liquid assets over less liquid assets. The reason is obvious. More liquid assets can buy less liquid assets at face value, meanwhile less liquid assets require you to find a willing buyer to trade, which is costly both in time and effort spent on planning the transaction. If you're impatient, you'll have to sell your asset at a discount.
The opposite is also true. If you are an investor, you prefer handing out less liquid assets first, such as credits that can only be used to buy your own products.
Investors are non fungible. Partnering w/ your supplier can provide benefits such as preferential treatment and early access to hardware that are non-monetary but enormously valuable.
When finance folks come up with creative solutions to problems, bad things happen.
Here the “problem” is that these AI companies don’t have enough money to buy things and the traditional pool of investors that would give cash and then sit on the sidelines has dried up. Normally in that scenario companies just go bust.
To keep throwing fuel on the fire suppliers are stepping in the “invest” so AI startups can buy the supplier’s goods. History says that’s a terrible idea.
Markets correct craziness in the end, everyone will wonder how this mess ever happened, hearings will be held, and a range of new regulations will be introduced to prevent this sort of thing from happening again. Then finance folks will come up with some new way with finance to be less boring and the cycle brings anew.
> 4. Amazon records a large paper “profit” because the value of the Anthropic “investment” went up after all the stuff it’s doing with the “investment” from Amazon
This will be offset against the cost of the initial investment, though?
The OpenAI / AMD deal was even crazier. This stuff is all good, until it’s not. Then everything implodes as not only does the “revenue” go away, but then companies take big write downs from the value of the investments they previously counted as income.
In the case of Nvidia and Poolside, isn't it more like: Poolside pays part of Nvidia's made up price for chips with some of Poolside's imaginary value stock?
I recently listened to a podcast episode about Enron, and one of the red flags was that they reported profits on paper, but didn't generate cash flow proportional to their profits.
Both Amazon and Nvidia probably don't need the cash flow right now, which is why they can get away with it. It'll be interesting to see what happens if their cashflow ever runs dry.
I've heard the business term as a "reciprocal agreement" a common behavior of large companies would be to award a large contract for IT services to a 3rd party and then that company would assist in getting a market foothold in their home country, like India.
This distorts the markets, undermines financial disclosures, and probably stifles innovation. In your example, when Amazon invests in Anthropic, do they then get voting shares and a say where the opex go?
(Rhetorical) Why are we okay with building these card houses?
I'm not an economist or accountant so take this with a pinch of salt, but this basically transforms Amazon money into datacentres with a guaranteed customer. That's your profit right there.
There’s a whole generation now that wasn’t in the trenches for the .com bust or 2008 crisis that’s blissfully unaware of what’s about to transpire when everything that’s been going on unravels.
>Poolside operates across the US and Paris, focusing on coding automation tailored for government and defence clients.
>The company is also working on bold infrastructure expansion. Earlier this month, Poolside partnered with CoreWeave to build one of the largest data centres in the US under an initiative called Project Horizon. Set in West Texas, the facility is slated to reach 2 gigawatts of capacity, which is enough to power about 1.5 million homes.
> Poolside partnered with CoreWeave to build one of the largest data centres
Nvidia has a backstop deal with Coreweave [1]. I am sure this is all above board but seeing how these giants all have incestuous relationship with each other makes me uneasy about putting money in the markets.
Yeah, the first article I linked says Poolside plans to spend much of the $1B investment from Nvidia on GB300's. It's all just one circular flow at this point with Nvidia giving everyone cash that they agree to use to buy GPUs from them.
So, Poolside is a company that exists solely to secure funding from NVIDIA and use the funds to purchase NVIDIA chips? I wonder if there is a word for it ...
My take is this is mostly a takeout of Amazon’s trainium program, helping Nvidia to cull competition from Amazon in its infancy.
Up until the date of the announcement, poolside was one of Amazon’s largest trainium customers, other than anthropic. This investment from Nvidia kicks one of the legs out from Amazon’s already rickety AI accelerator stool. 40 K in Blackwell GPUs is expensive even with the Nvidia investment. Poolside will likely not have the money to spend an equivalent amount now with Amazon.
We all know of bubbles. Let's assume the idea of a bubble has not escaped investors attention.
Here is where I get confused:
- It does not seem very likely that all the people whose entire job it is to make these decisions are completely incompetent. Is it for some reason good to invest badly? How does this work in reality? Does it not matter if an investment goes to zero? Is every investment a good investment, because nvidia sells chips, is that how the math works here?
- Absolutely everyone and their mum talks bubble and supposedly can see it clearly (in contrast to for example the 2008 housing bubble) but nobody in power has the ability to act rationally. What the idea here?
- If it can be explained, that every investment is good now, and the answer to the previous question is something like "greed", why stop at a measly billion? Why not just, say, 10 billion? The money is there obviously. More "bad" investment = better?
It's like the boss of Citicorp said back in 2008, "as long as the music is playing, you've got to get up and dance". If you withdraw from the market entirely then you'll definitely lose. So they try to time the market and hope to get out when the music stops. Didn't exactly work out well for Citicorp.
Hm. So what's the idea. All of FAANG, all investors, they all do it like that citibank person said, who failed catastrophically, because...? At best this tale reads to me: Even if you are fully aware, and super big, you are high risk of losing it all, and most people will lose it all. Is everyone who was involved in building these mega corps by investing smartly over fairly long periods of time now delusional, at the same time? We can see it, but they can't? Is that what's required to explain it?
I am not much of a trader, but I assume there are always insane opportunities to invest a few billion dollars in high risk/high gain stuff, no? Why wait for AI? You can try to time any market. What explains the enormous amount of money into this one?
Firstly we don't factually know if it's a bubble. Maybe there's some beyond LLM breakthrough and everything turns out right? Even if it's a bubble, we've no idea how long it has to run. Could all burst tomorrow, could be in a few years. In some scenarios you're going to miss a lot of growth by exiting the market now.
VC investments are inherently high-risk, high reward. That is, most of the investments will go to zero, but hopefully one or two really good ones make up for it. In order to make that work, you have to invest in many different startups, which is what Nvidia seems to do.
Nvidia has the additional advantage that some of their invested money will make it back to them in the form of dollars spent on compute, which makes their investments cheaper for them, relatively speaking.
> If it can be explained, that every investment is good now, and the answer to the previous question is something like "greed", why stop at a measly billion? Why not just, say, 10 billion?
If the startup isn't looking to raise 10 billion, why give it 10 billion? Instead, give 10 startups one billion each, to spread out the risk.
I got into following the markets around the time of the housing bubble and everything I read at the time said their was a housing bubble.
I think the properties of a true bubble mean that it is not irrational to invest in the bubble and that is a part of what causes the bubble. If your neighbor makes $100k flipping a house and has no special skills above yourself then it is not irrational to also try to flip a house.
This bubble especially has that property. Like Zuckerberg has said there is a big risk of not taking enough risk on something like AGI or super intelligence.
That is a perfectly rational position but that is exactly the self reinforcing nature of a speculative bubble.
I also don't think in general a bubble is fundamentally hard to spot. It is hard to profit though from the bubble bursting because of the self reinforcing process at play that you have to bet against.
If I know it's a bubble, what's the risk in waiting?
As long as it could still be far worse to not take a risk, then it's not actually a bubble, right? It's just an early investment. If I have to do something now, to not fall off the track, then the space might not be super clear right now but clearly still on track (because otherwise the correct strategy is waiting for the bubble to burst and maybe then invest).
Or maybe we are just really unclear about what "bubble" actually implies. To me it's the point at which a lot of people have invested a lot of money into something, that will be worth less, than that total amount of money. Is that wrong?
Like in 1929 or 1999 everyone knows it is a bubble, but always thinks they're the rational one who can ride the rollercoaster up and time the bubble, then sell before it pops.
It is the same psychology behind meme coins. Everyone knows they are worthless, they gain value because everyone is trying to make everyone else the greater fool holding the bag.
2008 was less a bubble of irrational exhuberance and more a bubble of overvaluation enabled by fraud of bundling bad mortgages into A rated investment products
With 70%+ profit margins on data centers, it's enough that just $1.43 billion in data center revenue is secured for $1b investment to pay back.
Nvidia's larger investments are even more conditional. With OpenAI, the investment is contingent on building huge data centers in the future. If the bubble ends, Nvidia pays nothing; if it continues, Nvidia has locked in a customer.
The closest parallel is probably with the dot com bubble where some companies (notably Cisco & IBM) loaned money to purchase network equipment to their own customers. Since those customers weren't profitable (or arguably even financially viable companies at all) the whole thing exploded rather spectacularly.
Cisco probably did the least bad out of all those telecom/networking companies, and I don't think IBM was ever a big player. So many companies saw the start of their demise then--Lucent, Nortel Networks, Ericcson, etc.
Last decade, some companies (that had more money that they knew what to do with) used that money to buy shares back. This decade, this company (that has more money that they know what to do with) invests in either "AI" or "AI datacenter" companies — and these use that money to buy the company products.
A company buying back shares is spending money to purchase an asset on the open market.
A company involved in round tripping passes fictional money in a circle and every company that touches it claims both revenue and expenses simply for passing it along.
A dividend is taxed. Share buybacks decrease the supply of outstanding shares so the hope is that the share price will increase. If shares are not sold, then there is an increase in value without incurring taxes.
The trick is essentially to buyback your own shares and destroy them. That effectively redistributes the value you bought to other shareholders, much like a dividend would.
How is that better you may ask? two reasons:
- Most investors prefer to accumulate rather than receiving cash. If you post dividends, they are immediately subject to withholding tax, so you get taxed before reinvesting.
- In a lot of cases, capital gains tax and withholding tax are different, the former being much lower than the latter. This is especially the case for funds with foreign UBOs, which incur 2x15% WH tax at the source.
- Buybacks are just more flexible, those that want cash can sell, those who prefer to accumulate are happy to stay, there's no real downside.
You can only realize the tax if the stock owners sell the stock (vs. giving them a dividend which triggers the tax on payment). It is more of a tax delay but since many people who bought these stocks have more money than they need, they no longer need to sell and they don't need the dividends much. So a buyback is just injecting that money back into their shares tax-free.
Yes, that's sort of what I thought must be happening. There's no "trick" involved. It's like saying salaries are a "trick" to avoid dividend tax. They'll still pay tax on it when they sell it.
Well we can argue on the meaning of trick I guess.
Share buybacks are essentially a way to achieve the same effect as dividends, but in a non-obvious way, which has the benefit of avoiding taxation. That's a "trick" in my book, but I guess terminology doesn't matter that much.
> They'll still pay tax on it when they sell it.
Not but it's not _equivalent_. The tax paid on capital gains is not the same as the withholding tax. And paying tax _after_ compounding is not the same as paying it _before_.
Share buybacks are _effectively_ a trick to circumvent withholding tax for investors not willing to divest.
> which has the benefit of avoiding taxation. That's a "trick" in my book
But why? Minimising tax legally is...legal, and not a trick. That's all tax avoidance is.
> The tax paid on capital gains is not the same as the withholding tax.
That seems totally fine - if the rules are different then that's up to the people who write the rules. It's not a trick to choose to be paid via one method or another.
> But why? Minimising tax legally is...legal, and not a trick. That's all tax avoidance is.
I think we are lost in translation here. I am not a native English speaker, so there may be a subtle implication in "trick" that you see and I don't.
I meant "trick" as in "trick of the trade", a clever/crafty way of achieving something that may not be obvious for less experienced individuals.
Re-phrasing my original comment for clarity: "Share buybacks are just a technique to lower WH tax, why do you see this as anything related to round tripping as related in this article?".
I mean management is going to think the stock is always undervalued.
Slightly offtopic: If a company does a stock buyback because they think its undervalued, what happens next? Does the stock go up and they're satisfied? Does the stock go up and then they sell it?
If they're selling it to realize profits, I say that it tantamount to pump-and-dump. If they sell it just to hike the price, why not distribute dividends with their excess cash reserves?
The purpose of a stock buyback is to increase the shares value. This allows investors to choose to realize profits, but this is not a "pump and dump" because having less outstanding shares fundamentally drives the price up. There is nothing wrong with stock buybacks.
The reason this is often done instead of a special dividend is that dividends create an immediate taxable event for all investors, which is considered less flexible than the capital gains tax associated with a stock buyback.
Besides the tax treatment difference, it's mostly a signalling/communication choice: share buybacks increase EPS which is a nice story, whereas dividends signal reliable profits.
I respectfully disagree. I think that stock buybacks distort the market and dividends don't. If our markets could be either based on A: a nice story or B: reliable profits, the choice for stability and growth is bright and clear.
Seems to make sense, if Poolside is selling a product which requires (or strongly recommends) that Poolside customers have on-prem or private cloud compute capability in order to fully integrate all the tools, right now that compute need is likely going to be filled by using NVIDIA hardware. So even if NVIDIA isn't selling a ton of hardware directly to Poolside, NVIDIA is likely going to sell a whole bunch of hardware to businesses using Poolside's solutions.
As much as the whole AI thing feels like a bubble, this feels less round-trip-like to me than some of the other recent deals which have been in the press.
These deals all look like classic “round tripping.” Is there any evidence that this activity is generating actual net new $ that didn’t exist previously?
Amazon’s recent earnings was full of apparent round tripping.
1. Amazon “invests” in Anthropic (cost)
2. Anthropic takes that money and buys AWS (same dollars come back as revenue)
3. Amazon builds big datacenter for Anthropic (cost)
4. Amazon records a large paper “profit” because the value of the Anthropic “investment” went up after all the stuff it’s doing with the “investment” from Amazon
Meanwhile none of the above appears to actually be making any actual profit in terms of revenues > costs.
It’s bonkers. These are the same sort of shenanigans that were going on with infrastructure prior to the .com implosion. Did we learn nothing?
Access to infrastructure is a core part of the AI business.
If you are a startup, and you want to buy AI infrastructure, you would typically sell equity to a VC and use that money to buy infrastructure.
If the AI infrastructure vendor would offer to buy that equity, rather than a VC, that’s preferable because you may get ongoing special treatment from the vendor once they have a stake. So it’ a great deal for the startup.
For the infra vendor- you can likely get a good deal on the investment, you get some exposure to higher upside, and it may be useful to manage your cash flow.
Seems like strategic high value moves to me. It’s no wonder the market likes it
You just described round tripping.
The problem is that no 3rd party seems willing to just invest cash because they believe these companies are currently a good investment. That’s what’s raising alarm bells.
I’m not disagreeing, but do the AI companies want cash? If their main expenditure is infra, maybe they’re only seeking investment from AWS/Azure/GCP etc. How would an extra billion from the Saudis buy them that a billion from Amazon wouldn’t?
I’m not a fan of round tripping by any means. Just wondering if what you’re saying is true.
Why would AI companies prefer $1 billion of Nvidia credits over $1 billion cash?
Liquidity preference.
This might be a bit too convoluted, but here is a way to get straight to the point. Assume there is a perfectly liquid asset and its nominal value is $1 million. Now imagine you have stocks that are worth $1 million, but the market price fluctuates over time.
The market price of the perfectly liquid asset is always the mean, the variance is zero. The value of the stock follows a probability distribution, e.g. a Gaussian distribution. The mean is the same, but the variance means that you can't just sell the asset at any time you want.
Even when the nominal value is the same, people prefer more liquid assets over less liquid assets. The reason is obvious. More liquid assets can buy less liquid assets at face value, meanwhile less liquid assets require you to find a willing buyer to trade, which is costly both in time and effort spent on planning the transaction. If you're impatient, you'll have to sell your asset at a discount.
The opposite is also true. If you are an investor, you prefer handing out less liquid assets first, such as credits that can only be used to buy your own products.
Investors are non fungible. Partnering w/ your supplier can provide benefits such as preferential treatment and early access to hardware that are non-monetary but enormously valuable.
> The problem is that no 3rd party seems willing to just invest cash
It seems to me that these AI companies are seeing no shortage of cash investments either.
Deals based on creative accounting are a reliable sign a bubble is about to burst. That’s why folks are calling out these deals.
When finance folks come up with creative solutions to problems, bad things happen.
Here the “problem” is that these AI companies don’t have enough money to buy things and the traditional pool of investors that would give cash and then sit on the sidelines has dried up. Normally in that scenario companies just go bust.
To keep throwing fuel on the fire suppliers are stepping in the “invest” so AI startups can buy the supplier’s goods. History says that’s a terrible idea.
Markets correct craziness in the end, everyone will wonder how this mess ever happened, hearings will be held, and a range of new regulations will be introduced to prevent this sort of thing from happening again. Then finance folks will come up with some new way with finance to be less boring and the cycle brings anew.
> 4. Amazon records a large paper “profit” because the value of the Anthropic “investment” went up after all the stuff it’s doing with the “investment” from Amazon
This will be offset against the cost of the initial investment, though?
The OpenAI / AMD deal was even crazier. This stuff is all good, until it’s not. Then everything implodes as not only does the “revenue” go away, but then companies take big write downs from the value of the investments they previously counted as income.
I think the initial investment are calculated as CapEx, not revenue: t.ly/NO52v
So the initial investment is free! Lunch is served!!
Well - it's potentially a good deal for the supplier if they can buy ownership of companies downstream of them through their supplies.
It sure is
In the case of Nvidia and Poolside, isn't it more like: Poolside pays part of Nvidia's made up price for chips with some of Poolside's imaginary value stock?
I recently listened to a podcast episode about Enron, and one of the red flags was that they reported profits on paper, but didn't generate cash flow proportional to their profits.
Both Amazon and Nvidia probably don't need the cash flow right now, which is why they can get away with it. It'll be interesting to see what happens if their cashflow ever runs dry.
I've heard the business term as a "reciprocal agreement" a common behavior of large companies would be to award a large contract for IT services to a 3rd party and then that company would assist in getting a market foothold in their home country, like India.
I agree big time.
This distorts the markets, undermines financial disclosures, and probably stifles innovation. In your example, when Amazon invests in Anthropic, do they then get voting shares and a say where the opex go?
(Rhetorical) Why are we okay with building these card houses?
I'm not an economist or accountant so take this with a pinch of salt, but this basically transforms Amazon money into datacentres with a guaranteed customer. That's your profit right there.
There’s a whole generation now that wasn’t in the trenches for the .com bust or 2008 crisis that’s blissfully unaware of what’s about to transpire when everything that’s been going on unravels.
When Anthropic pays opex for using the data centers?
Isn’t the same with any business just a bit more indirect? So at what threshold is “Fine” and when is not?
1 to 1 cycle: bad 1 to 1 to 1 cycle: good?
…?
Congratulations to the bubble, which is doing well for itself today
I wanted to complain how Reuters says close to nothing about Poolside in that news article, but Poolside's own web page is as enigmatic as it gets.
I Google News searched Poolside and found this:
https://techfundingnews.com/nvidia-prepares-up-to-1b-investm...
>Poolside operates across the US and Paris, focusing on coding automation tailored for government and defence clients.
>The company is also working on bold infrastructure expansion. Earlier this month, Poolside partnered with CoreWeave to build one of the largest data centres in the US under an initiative called Project Horizon. Set in West Texas, the facility is slated to reach 2 gigawatts of capacity, which is enough to power about 1.5 million homes.
Searching for Project Horizon led to this:
https://poolside.ai/blog/announcing-project-horizon
So another data center company, but focused on the Defense/Intelligence community. A hardware equivalent to Palantir?
> Poolside partnered with CoreWeave to build one of the largest data centres
Nvidia has a backstop deal with Coreweave [1]. I am sure this is all above board but seeing how these giants all have incestuous relationship with each other makes me uneasy about putting money in the markets.
[1]:https://www.reuters.com/business/coreweave-nvidia-sign-63-bi...
> seeing how these giants all have incestuous relationship with each other makes me uneasy about putting money in the markets
If you invest in index funds (instead of picking single stocks), you shouldn’t be too worries IMO.
E.g. something tracking MSCI World/All-World or just the S&P500 (US-only though).
You won’t get 100x homeruns (more like 10-15% avg returns/year), but you will drastically lower your risk of losing your money.
Yeah, the first article I linked says Poolside plans to spend much of the $1B investment from Nvidia on GB300's. It's all just one circular flow at this point with Nvidia giving everyone cash that they agree to use to buy GPUs from them.
Nothing brings joy and optimism like giving $1B to a "coding automation for defence" startup.
If there's one person I don't want to lose their job to a shonky AI agent, it's Stanislav Petrov.
So, Poolside is a company that exists solely to secure funding from NVIDIA and use the funds to purchase NVIDIA chips? I wonder if there is a word for it ...
My take is this is mostly a takeout of Amazon’s trainium program, helping Nvidia to cull competition from Amazon in its infancy.
Up until the date of the announcement, poolside was one of Amazon’s largest trainium customers, other than anthropic. This investment from Nvidia kicks one of the legs out from Amazon’s already rickety AI accelerator stool. 40 K in Blackwell GPUs is expensive even with the Nvidia investment. Poolside will likely not have the money to spend an equivalent amount now with Amazon.
„Nvidia to invest up to $1B in AI startup Poolside“
Let me predict tomorrow’s headline: NVIDIA‘s revenue grows by yet another $1B, because Poolside just ordered $1B worth of NVIDIA AI accelerator cards.
We all know of bubbles. Let's assume the idea of a bubble has not escaped investors attention.
Here is where I get confused:
- It does not seem very likely that all the people whose entire job it is to make these decisions are completely incompetent. Is it for some reason good to invest badly? How does this work in reality? Does it not matter if an investment goes to zero? Is every investment a good investment, because nvidia sells chips, is that how the math works here?
- Absolutely everyone and their mum talks bubble and supposedly can see it clearly (in contrast to for example the 2008 housing bubble) but nobody in power has the ability to act rationally. What the idea here?
- If it can be explained, that every investment is good now, and the answer to the previous question is something like "greed", why stop at a measly billion? Why not just, say, 10 billion? The money is there obviously. More "bad" investment = better?
It's like the boss of Citicorp said back in 2008, "as long as the music is playing, you've got to get up and dance". If you withdraw from the market entirely then you'll definitely lose. So they try to time the market and hope to get out when the music stops. Didn't exactly work out well for Citicorp.
Hm. So what's the idea. All of FAANG, all investors, they all do it like that citibank person said, who failed catastrophically, because...? At best this tale reads to me: Even if you are fully aware, and super big, you are high risk of losing it all, and most people will lose it all. Is everyone who was involved in building these mega corps by investing smartly over fairly long periods of time now delusional, at the same time? We can see it, but they can't? Is that what's required to explain it?
I am not much of a trader, but I assume there are always insane opportunities to invest a few billion dollars in high risk/high gain stuff, no? Why wait for AI? You can try to time any market. What explains the enormous amount of money into this one?
Firstly we don't factually know if it's a bubble. Maybe there's some beyond LLM breakthrough and everything turns out right? Even if it's a bubble, we've no idea how long it has to run. Could all burst tomorrow, could be in a few years. In some scenarios you're going to miss a lot of growth by exiting the market now.
Well, but in that case all we mean by "It's a bubble" is "I am pessimistic".
That's fine... I guess. Somewhat boring. I have no clue why we would feel the need to dress it up and make it sound like insight into the market.
VC investments are inherently high-risk, high reward. That is, most of the investments will go to zero, but hopefully one or two really good ones make up for it. In order to make that work, you have to invest in many different startups, which is what Nvidia seems to do.
Nvidia has the additional advantage that some of their invested money will make it back to them in the form of dollars spent on compute, which makes their investments cheaper for them, relatively speaking.
> If it can be explained, that every investment is good now, and the answer to the previous question is something like "greed", why stop at a measly billion? Why not just, say, 10 billion?
If the startup isn't looking to raise 10 billion, why give it 10 billion? Instead, give 10 startups one billion each, to spread out the risk.
I got into following the markets around the time of the housing bubble and everything I read at the time said their was a housing bubble.
I think the properties of a true bubble mean that it is not irrational to invest in the bubble and that is a part of what causes the bubble. If your neighbor makes $100k flipping a house and has no special skills above yourself then it is not irrational to also try to flip a house.
This bubble especially has that property. Like Zuckerberg has said there is a big risk of not taking enough risk on something like AGI or super intelligence. That is a perfectly rational position but that is exactly the self reinforcing nature of a speculative bubble.
I also don't think in general a bubble is fundamentally hard to spot. It is hard to profit though from the bubble bursting because of the self reinforcing process at play that you have to bet against.
If I know it's a bubble, what's the risk in waiting?
As long as it could still be far worse to not take a risk, then it's not actually a bubble, right? It's just an early investment. If I have to do something now, to not fall off the track, then the space might not be super clear right now but clearly still on track (because otherwise the correct strategy is waiting for the bubble to burst and maybe then invest).
Or maybe we are just really unclear about what "bubble" actually implies. To me it's the point at which a lot of people have invested a lot of money into something, that will be worth less, than that total amount of money. Is that wrong?
Like in 1929 or 1999 everyone knows it is a bubble, but always thinks they're the rational one who can ride the rollercoaster up and time the bubble, then sell before it pops.
It is the same psychology behind meme coins. Everyone knows they are worthless, they gain value because everyone is trying to make everyone else the greater fool holding the bag.
2008 was less a bubble of irrational exhuberance and more a bubble of overvaluation enabled by fraud of bundling bad mortgages into A rated investment products
Gotta keep up the bubble.
The Data Center Bubble: https://www.brethorsting.com/blog/2025/10/the-data-center-bu...
Global Crossing Is Reborn: https://pracap.com/global-crossing-reborn/
With 70%+ profit margins on data centers, it's enough that just $1.43 billion in data center revenue is secured for $1b investment to pay back.
Nvidia's larger investments are even more conditional. With OpenAI, the investment is contingent on building huge data centers in the future. If the bubble ends, Nvidia pays nothing; if it continues, Nvidia has locked in a customer.
Nvidia plays smart with little risk.
So this is the current equivalent of the share buybacks on the previous decade?
The closest parallel is probably with the dot com bubble where some companies (notably Cisco & IBM) loaned money to purchase network equipment to their own customers. Since those customers weren't profitable (or arguably even financially viable companies at all) the whole thing exploded rather spectacularly.
Cisco probably did the least bad out of all those telecom/networking companies, and I don't think IBM was ever a big player. So many companies saw the start of their demise then--Lucent, Nortel Networks, Ericcson, etc.
Not sure I get the reference here. Share buybacks are essentially a trick to avoid dividend tax, how is that related?
Last decade, some companies (that had more money that they knew what to do with) used that money to buy shares back. This decade, this company (that has more money that they know what to do with) invests in either "AI" or "AI datacenter" companies — and these use that money to buy the company products.
A company buying back shares is spending money to purchase an asset on the open market.
A company involved in round tripping passes fictional money in a circle and every company that touches it claims both revenue and expenses simply for passing it along.
A dividend is taxed. Share buybacks decrease the supply of outstanding shares so the hope is that the share price will increase. If shares are not sold, then there is an increase in value without incurring taxes.
> Not sure I get the reference here. Share buybacks are essentially a trick to avoid dividend tax, how is that related?
What does this mean? What's the trick?
> What does this mean? What's the trick?
The trick is essentially to buyback your own shares and destroy them. That effectively redistributes the value you bought to other shareholders, much like a dividend would.
How is that better you may ask? two reasons:
- Most investors prefer to accumulate rather than receiving cash. If you post dividends, they are immediately subject to withholding tax, so you get taxed before reinvesting.
- In a lot of cases, capital gains tax and withholding tax are different, the former being much lower than the latter. This is especially the case for funds with foreign UBOs, which incur 2x15% WH tax at the source.
- Buybacks are just more flexible, those that want cash can sell, those who prefer to accumulate are happy to stay, there's no real downside.
You can only realize the tax if the stock owners sell the stock (vs. giving them a dividend which triggers the tax on payment). It is more of a tax delay but since many people who bought these stocks have more money than they need, they no longer need to sell and they don't need the dividends much. So a buyback is just injecting that money back into their shares tax-free.
Yes, that's sort of what I thought must be happening. There's no "trick" involved. It's like saying salaries are a "trick" to avoid dividend tax. They'll still pay tax on it when they sell it.
> There's no "trick" involved
Well we can argue on the meaning of trick I guess.
Share buybacks are essentially a way to achieve the same effect as dividends, but in a non-obvious way, which has the benefit of avoiding taxation. That's a "trick" in my book, but I guess terminology doesn't matter that much.
> They'll still pay tax on it when they sell it.
Not but it's not _equivalent_. The tax paid on capital gains is not the same as the withholding tax. And paying tax _after_ compounding is not the same as paying it _before_.
Share buybacks are _effectively_ a trick to circumvent withholding tax for investors not willing to divest.
> which has the benefit of avoiding taxation. That's a "trick" in my book
But why? Minimising tax legally is...legal, and not a trick. That's all tax avoidance is.
> The tax paid on capital gains is not the same as the withholding tax.
That seems totally fine - if the rules are different then that's up to the people who write the rules. It's not a trick to choose to be paid via one method or another.
> But why? Minimising tax legally is...legal, and not a trick. That's all tax avoidance is.
I think we are lost in translation here. I am not a native English speaker, so there may be a subtle implication in "trick" that you see and I don't.
I meant "trick" as in "trick of the trade", a clever/crafty way of achieving something that may not be obvious for less experienced individuals.
Re-phrasing my original comment for clarity: "Share buybacks are just a technique to lower WH tax, why do you see this as anything related to round tripping as related in this article?".
Not quite. If a company is buying back shares, management believes stock is undervalued. The reverse is paying for real assets with stock.
Some of this is paying for barely useful assets using inflated stock, or with cash borrowed with inflated stock as collateral for the cash.
I mean management is going to think the stock is always undervalued.
Slightly offtopic: If a company does a stock buyback because they think its undervalued, what happens next? Does the stock go up and they're satisfied? Does the stock go up and then they sell it?
If they're selling it to realize profits, I say that it tantamount to pump-and-dump. If they sell it just to hike the price, why not distribute dividends with their excess cash reserves?
The purpose of a stock buyback is to increase the shares value. This allows investors to choose to realize profits, but this is not a "pump and dump" because having less outstanding shares fundamentally drives the price up. There is nothing wrong with stock buybacks.
The reason this is often done instead of a special dividend is that dividends create an immediate taxable event for all investors, which is considered less flexible than the capital gains tax associated with a stock buyback.
Besides the tax treatment difference, it's mostly a signalling/communication choice: share buybacks increase EPS which is a nice story, whereas dividends signal reliable profits.
I respectfully disagree. I think that stock buybacks distort the market and dividends don't. If our markets could be either based on A: a nice story or B: reliable profits, the choice for stability and growth is bright and clear.
Share buybacks are quite different than round tripping.
Congratulations to France, the AI leader in Europe.
I wonder what made them move their headquarters to France
https://www.politico.eu/article/france-emmanuel-macron-pledg...
> "It is the French equivalent of what the U.S. announced with Stargate. It is the same proportion," Macron said.
they received massive funding from french billionaires, maybe it was part of the deal
Joint with Finland, no?
Seems to make sense, if Poolside is selling a product which requires (or strongly recommends) that Poolside customers have on-prem or private cloud compute capability in order to fully integrate all the tools, right now that compute need is likely going to be filled by using NVIDIA hardware. So even if NVIDIA isn't selling a ton of hardware directly to Poolside, NVIDIA is likely going to sell a whole bunch of hardware to businesses using Poolside's solutions.
As much as the whole AI thing feels like a bubble, this feels less round-trip-like to me than some of the other recent deals which have been in the press.
The senseless bubble keeps going up until...