It seems similar to how GE under Jack Welch would use their rock solid financials to take on low cost debt that they could lend out to suppliers who needed finance to purchase their products.

The biggest difference here though is that most of these moves seem to to involve direct investment and the movement of equity, not debt. I think this is an important distinction, because if things take a downturn debt is highly explosive (see GE during the GFC) whereas equity is not.

Not to say anyone wants to take a huge markdown on their equity, and there are real costs associated with designing, building, and powering GPUs which needs to be paid for, but Nvidia is also generating real revenue which likely covers that, I don't think they're funding much through debt? Tech tends to be very high margin so there's a lot of room to play if you're willing to just reduce your revenue (as opposed to taking on debt) in the short term.

Of course this means asset prices in the industry are going to get really tightly coupled, so if one starts to deflate it's likely that the market is going to wipe out a lot of value quickly and while there isn't an obvious debt bomb that will explode, I'm sure there's a landmine lying around somewhere...

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paganel 4 days ago | parent | next [-]

> debt is highly explosive (see GE during the GFC) whereas equity is not.

Not as explosive as debt but I'd venture to say that nowadays equity is a lot more "inflamable" compared to 2008-2010, as in a lot more debt-like (which I think partly explains the current equity bubble in the US).

As in, there are lots and lots of investment funds/pension funds/other such like financial entities which are very heavily tied to the "performance" of equity, and I'm talking about trillions (at this point) of dollars, and if that equity were to get a, let's say, 20 or 30% hair-cut in a matter of two-three months (at most), then we'll for sure be back in October 2008 mode.

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littlestymaar 4 days ago | parent | next [-]

> As in, there are lots and lots of investment funds/pension funds/other such like financial entities which are very heavily tied to the "performance" of equity, and I'm talking about trillions (at this point) of dollars, and if that equity were to get a, let's say, 20 or 30% hair-cut in a matter of two-three months (at most), then we'll for sure be back in October 2008 mode.

Just curious, can you detail how it would fail exactly?

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crowcroft 4 days ago | parent [-]

Anytime there's a massive draw down equities an asset-liability mismatch shows up (margin calls) because someone was borrowing money to spend in the short term against the value of assets that have now disappeared.

It might not be the catastrophic cascading failure of the GFC, but someone somewhere in the pile will get exposed.

	▲	littlestymaar 4 days ago \| parent [-]
		Ah yes I see. It's the idea that somewhere, somehow, there is debt that's funding all of this, even if it's very indirect.

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crowcroft 4 days ago | parent | prev [-]

Totally agree, it might not blow up in Nvidia's face, but there's a margin call sitting around somewhere in the pile.

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psunavy03 4 days ago | parent | prev | next [-]

GE also created their "rock-solid financials" by moving money around as necessary to make earnings projections.

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phh 4 days ago | parent | prev [-]

Except I'm guessing they are not selling their equity, they are making debt backed by their equity?

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crowcroft 4 days ago | parent [-]

Yea this is speculation, you might be right. I'm not sure how exactly they're doing this but my thinking would be.

1. Selling equity (probably good).

2. Financed with actual profits over time showing up as lower margins on the income statement (probably good).

3. Issuing debt backed by their equity (possibly a dumpster fire).

	▲	bwfan123 4 days ago \| parent [-]
		> Financed with actual profits over time showing up as lower margins on the income statement (probably good) would these equity investments only impact the balance-sheet as financial investments - why would they show up as lower margins on income statement ?