Nvidia is making trades for people to buy their GPUs.
Sometimes companies are trading stock for GPUs, sometimes money, other times something else.
In summary, Nvidia is selling GPUs.
Nvidia invests, that equity check gets used to secure 10x it in debt with the GPUs as collateral, and then they buy the chips.
Nvidia gets paid, so they don't hold the debt liability. But, if AI revenue doesn't cover those debt payments before the GPUs depreciate, the loop starts to unravel, and fast. CoreWeave, Oracle, all the "neoclouds" etc. will blow up, and there could potentially be a ton of PE debt that is now under-collateralized due to depreciation, causing a pretty big haircut to basically all of private credit.
Chinese models pushes prices down and quality up, that makes GPU-based automation more affordable, while covering more and more cases to automate.
You can debate that llm producers will go bankrupt, some of them at least for sure.
How do you lose in this market if you do gpu?
You don't. Nvidia gets paid either way. They were never the ones in danger (outside of the buildout going bust and having a massive surplus of cheap, used GPUs flood the market).
> You can debate that llm producers will go bankrupt, some of them at least for sure.
And that's the risk that will cascade down and kill off a bunch of companies and cause a debt crisis. If (for example), OpenAI goes to Oracle and says "I promise I'll pay you, at some point in the future, $1T to build my datacenters" and then Oracle funds that build out with debt, and then OpenAI goes bust, or just doesn't make enough money or can't raise enough cash to start making payments on their IOU, Oracle now also can't pay their debt and will eventually go bust, and now the private credit market takes a huge haircut, potentially bankrupting entire funds (like what happened in '08).
Nvidia can lose a lot of money if those companies fail. But even in the absolute worst case, Nvidia can go back to making video game GPUs and they will be fine.
The problem is for everyone else who invested in AI. Especially American "401" retirement funds that always invest in the 100 biggest companies.
https://www.sciencedirect.com/science/article/abs/pii/S01651...
It's stronger for momentum stocks, but it's not like something like a gold mine escapes from it either.
These deals give Nvidia more exposure to that, in both directions. Certainly Nvidia shareholders should be cognizant of this. But nothing structurally problematic is occurring here.
Without continued external investment, the cycle stops, and we all learn what "too big to fail" looks like this time.
Nvidia gets real cash, pays TSMC, etc.
The people in real trouble are companies like CoreWeave, Oracle, etc. that took an IOU from OpenAI (for example) to start a buildout, entirely debt financed. It works out so long as demand keeps going up, but the moment the music stops and that debt comes due and there's no revenue to pay it, game over.
Nvidia's concern isn't not actually getting paid, it's being faced with a glut of cheap, depreciated GPUs flooding the market impacting their future revenue. They'll live.
But OpenAI, not being able to pay CoreWeave, for example, that IOU, and then private credit coming for the debt payments from CoreWeave, is what would start the chain reaction. We may actually get to live to see Oracle fall.
Those customers aren't buying Nvidia chips with Nvidia's money. They're using Nvidia's equity check to finance debt, and then using debt to buy the GPUs. Nvidia invests $1B in someone like CoreWeave, CoreWeave then takes that check, goes to PE a borrows $10B w/ the GPUs as collateral. Nvidia basically paid $1B to get $10B in sales, and now CoreWeave is saddled with debt based on an IOU from the AI labs.
Nvidia is insulated from the debt exposure, but the companies doing the datacenter build outs are the ones in real trouble if the house of cards comes falling down.