> On the one hand you can look at these companies investing and take it as a signal that there is something there (in OpenAI) that's worth investing in. On the other hand all these companies that are investing are basically getting that investment back through spending commitments and such and are just using OpenAI as a proxy for what is essentially buying more revenue for themselves.

I don't understand how this is some kind of cheat code. Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back".

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bradfa 3 hours ago | parent | next [-]

I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No?

NVIDIA gross margins lately are like 75%, so it's more like you give me $100 to buy something from me that cost me $25 to produce, hence I end up with $100 worth of stock in your company and it only cost me $25.

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ethbr1 2 hours ago | parent | next [-]

> hence I end up with $100 worth of stock in your company and it only cost me $25.

You also lost out on $75 worth of cash revenue (opportunity cost from selling the same thing to a different customer), so really you just took stock in lieu of cash.

It'd be different if Nvidia (TSMC) had excess production capacity, but afaik they're capped out.

So it's really just whether they'd be selling them to OpenAI and getting equity in return or selling to customers and getting cash in return.

If OpenAI thinks their own stock is valued above fundamentals, it's a no brainer to try and buy Nvidia hardware with stock.

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ben_w 3 hours ago | parent | prev | next [-]

> I give you $100 cash and you give me $100 worth of stock in return. Now you give me $100 cash to buy something from me that cost me $80 to produce. I end up with $100 worth of stock in your company which cost me only $80. No?

Sure, but how's that a cheat code? If you normally sell something for $100 that costs $80 to make, and then use that $100 revenue to buy $100 of stock, this is an identical outcome for you.

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danielheath 2 hours ago | parent [-]

They wouldn’t have bought $100 worth of product if the deal weren’t offered, because they didn’t have $100 to spend.

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ben_w 2 hours ago | parent [-]

If they couldn't borrow $100, or get $100 from any other investor, that just puts you in the position of being an investor, and even then the difference between bradfa's version and mine is simply when you became an investor, not that you became one.

Again, this is not a cheat code: if you sell $80 of cost for $100 of stock, the stock you now own can go up or down, and if you overvalued it then down is the more likely direction.

	▲	ethbr1 2 hours ago \| parent [-]
		The primary cheat code here would actually seem to be (a) getting preferential access to Nvidia's production through these deals and (b) creating a paper story of increasing OpenAI private valuation.

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Sleaker 3 hours ago | parent | prev [-]

Aaaannd get to claim the 100 as revenue to show investors that the company is performing better than if I had not made the deal, which also means that demand for the product stays inflated which also means I can keep my margins higher by not needing to discount my product.

	▲	rvnx 2 hours ago \| parent [-]
		Urgently need an IPO so losers can chip in. If the sandcastle plummets before, funds and other AI companies lose a lot, so better bet again and again, even if this is nonsensical.

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tsimionescu 2 hours ago | parent | prev | next [-]

The problem is here:

> Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80?

Why limit myself to $100 for a product that costs $80? I could just as well give you $1 000 000 to buy this same product from me. That way, I have a $1 000 000 share of your company, and I have $1 000 000 in revenue, and it only cost me $80.

This distorts the market for the product we're trading, and distorts the share price for both my company and yours.

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overfeed 2 hours ago | parent | prev | next [-]

> Isn't that basically the same as me giving you $80?

In your accounting, you can claim that you have an investment worth $100 and book $100 worth of revenue. You're juicing your sales numbers to impress shareholders - presumably, without your $100, the investee wouldn't have bought $100 worth of your product. The last thing your shareholders want to see are your sales numbers stop growing, or heaven forbid, start shrinking.

Nvidia is not the first company to "buy" sales of its own product via simple or convoluted incentive schemes. The scheme will work for a while until it doesn't.

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hirako2000 3 hours ago | parent | prev | next [-]

That's like giving them* $20.

And inflate your revenue by $80.

Laws on competition make this kind of arrangements illegal, so you would have to exerce influence and have the invested in company pretends you happen to have been picked among competitors.

In any case the SEC will be focused on whether the filings aren't made up to fraud investors, so they could reject the IPO, of the invested in company. Your own entity also is at risk.

We all know MS gets away with it, they have good legal goons who find way to make all of it appears fair with regards to the law.

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rafaelmn 3 hours ago | parent | prev | next [-]

In exchange for 100$ of your stock AND making your revenue numbers look insane for the next cycle ?

Also Nvidia margins are waaay higher than 20%

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_fat_santa 3 hours ago | parent | prev | next [-]

How I see it is the companies want to jack their revenue and in turn jack the price of their stock and please shareholders. Those are the two main goals which this accomplishes, regardless of the underlying fundamentals.

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Alex3917 3 hours ago | parent | prev | next [-]

For both Amazon and Nvidia, their marginal costs are probably much lower than their fixed costs.

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coliveira 2 hours ago | parent | prev | next [-]

The reason this doesn't make sense is that this is the math of monopoly creation! The government should be making sure companies don't go around throwing money at circular deals that will make them and their friends a fortune while cornering the market, but it seems that capitalism rules don't exist anymore in the US.

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skydhash 3 hours ago | parent | prev | next [-]

I'm not a finance expert, but it may be because investment and purchase are are taxed differently (I don't know). You gave $100 away as investments, got $100 back as revenue. Meanwhile you establish that your product are worth $100 (while costing $80) and you have $100 worth of shares. Without considering side effects, you gave away $80 worth of product for $100 (supposed) worth of shares. But shares are subject to side effects and those side effects can be quite nice (making the news, establishing price,...).

The issue is that there's no organic force behind those changes and it makes everything hollow. You could create a market inside a deserted area and make it appear like a metropolis.

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SecretDreams 3 hours ago | parent | prev [-]

> I don't understand how this is some kind of cheat code. Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80? I don't see at all how that's me "basically getting that investment back".

What if the product only costs you $20 to produce?