>But you haven't even articulated what the loophole here is.
I did, but here it is again: if you book revenue for sale of an asset where you guarantee the ROI on that asset (not on the entire business, you keep confusing those two very separate concepts), that revenue is suspect. You can stamp your feet and turn blue in the face claiming GAAP-compliance all you'd like, but that revenue should be regarded skeptically, just as revenue from an insolvent customer should be.
>Nvidia's guarantee is almost certainly a consideration for CoreWeave lenders that could lead them to provide financing on more favorable terms than they would if there was no guarantee.
Ha, nice side-step. Certainly CoreWeave isn't benefitting here, it's just those poor lenders. C'mon, man. You're right that the lenders will ultimately be left holding the bag, but that doesn't change the fact that CoreWeave is being induced to buy chips to the maximum limit of the ROI guarantee, independent of underlying demand. I've repeatedly said that, and you keep completely ignoring it and complaining that I'm not describing the problem.
>Building out capacity for CoreWeave isn't just about buying chips.
You're assuming that CoreWeave has to build out marginal capacity for those chips. We don't know, because the agreement is not public. But all CoreWeave has to do is have the capacity, which could easily---even probably---come from capacity already built but unsold, by the time the guarantee comes into play.
>The amount of debt raised ($35 billion+) far exceeds what it has paid Nvidia so lenders are nowhere close to having a make-whole guarantee from Nvidia here.
Again, you keep attacking a straw man. Not only have I never said Nvidia was guaranteeing CoreWeave's entire debt, I've explicitly said they were not, and did not need to in order to make this deal suspect.
>It's not that there are no risks here; it's that you haven't actually articulated in legitimate terms what they are and you haven't quantified anything.
I have in fact articulated them multiple times, you simply either haven't read them or for some reason lack the capacity to understand what I'm saying. And as I have also noted multiple times, the exact amounts don't matter. If you guarantee ROI on a piece of equipment in order to sell more of it, that is a red flag when your official narrative is that you can't make enough of these things to satisfy demand. And that is just as true on a $1M deal as it is on a $10B deal.
The right analogy here is not the auto industry, but the music industry. Regulation might "win", but margins will be driven down to commodity levels. That is not the assumption that current US AI company valuations are based on.
A more useful comparison would be the share of new emissions that data centers represent, and a comparison of the growth rates of various sources of marginal new emissions (eg, from cement, or ammonia). Besides their visibility, the reason that people focus on AI data centers is that they are a new source, on top of whatever organic growth there is in existing industries. And marginal growth in CO2 emissions is important because climate models bake in certain assumptions about growth. If a wildcard source suddenly appears with exponential growth, the projections on which public policy is based can be affected non-linearly. This article uses data only up to 2024; 18 months of exponential growth can change the picture quite a bit.
>We don't know what the maximum is because some of the terms are confidential.
So we agree on something: the $6.3B is not the cap: we don't actually know what the cap is. (And for the record, I never spoke confidently about the agreement, I spoke confidently about what was stated in the article.) The SLA you linked is the operating agreement that is effective once the revenue guarantee comes into effect, it is not the agreement that guarantees the revenue. Insolvency is a canard: the whole point, from CoreWeave's perspective, is that the guarantee helps insure that it won't go insolvent if demand doesn't materialize. It can essentially pass the loss back to Nvidia. That's also why you indicated that it makes the deal more attractive to third-party lenders, correct?
>So have you quantified how much money Nvidia has to spend to generate a dollar of artificial demand?
No, because the precise amount is irrelevant. What matters is that the chip demand is induced, not organic.
>CoreWeave is publicly traded. Feel free to evaluate the financials and explain how the company is insolvent.
I did not state that CoreWeave was insolvent. I was pointing out a flaw in your apparent belief that reported, GAAP-compliant revenue is unimpeachable. At least now, you're asking the right questions.
>A smarter discussion would be around CoreWeave's leverage and what happens if the AI demand dries up.
That is the discussion I have been trying to have. Nvidia's demand-goosing is only one piece of a much larger circular system. One way that demand would appear to dry up is that it was never as rapidly growing as these deals assume it is. Once everyone in the chain buys into an assumption of growth, it can become a self-fulfulling prophecy, at least until reality becomes unavoidable. Right now, the assumptions are not really about AI demand, they are about data center demand. That's where the money is being spent, and that's where the circularity is appearing. We are in a regime where companies are richly rewarded whenever they participate in a data center deal, because "everyone knows, AI is going to be huge." There is a good discussion of how this is happening in https://www.groundbrkr.com/p/the-second-derivative-why-no-on... (see section III, "the AI Boom is a Credit-Driven Real Estate Cycle"). The gist of the article is that actual AI demand doesn't have to "dry up" for the system to collapse, it only has to accelerate at a slower rate than the assumptions made to support the data center deals.
>You haven't actually demonstrated that Nvidia has guaranteed CoreWeave a positive return on its investment.
You're misreading the meaning of the term "investment" here; only the ROI on the GPU purchase is relevant with respect to Nvidia, not any pre-existing 3rd party debt. I'm not saying Nvidia is guaranteeing CoreWeave's net profit as a business, only the marginal ROI it expects from the chips. Which still means that it is incentivized to buy to whatever the limit is of the guarantee, independent of organic demand. And remember, real demand doesn't have to decline, it only has to slow its acceleration. Goosing demand as Nvidia has done is clearly risky in that environment. And it also raises the question, why they had to do it at all if demand is so robust?
You keep saying this. That is not what the article says. It says the backstop is currently valued at $6.3B. That is not the cap.
>Q1 2027 revenue of $81.6 billion is not a made up number.
No one is saying it's a made up number. If you want to argue, at least read the comment and address the actual argument being made, and not a straw man.
>If every dollar in was being used to drive a dollar of new demand, Nvidia's financials could not look like this.
No one is saying Nvidia was spending a dollar for every dollar. It doesn't have to in order for the demand to be manufactured.
>But you cannot claim this is all "fake"...
Nowhere in this thread did I say it was all fake. Quite the opposite, every bubble has to have a core of reality to be sustainable.
You keep insisting that any revenue booked and reported must be real. So answer me this: if I take a GPU order from an insolvent individual for $100M, can I book that $100M as revenue and be GAAP-compliant? Is it real? What if I don't know that they're insolvent? What if I guarantee them ROI of $10M/year on their purchase so they can get a loan and pay me the cash? Still all GAAP-compliant? Still all real? And keep in mind this isn't a binary question---some of the demand can be real and some manufactured. Maybe my customer had $20M, and ordered $100M since I was guaranteeing the ROI. These are the reasons I am "concerned", as you put it. And as you say, those concerns are reasonable.
I have no opinion one way or another how SF should be zoned. I'm just saying that how it is zoned is a second- or third-order effect on the rate of home-building. Land, labor and materials are the first-order effects. Now, maybe SF is saturated, and every square foot that could have a home on it already has one. Then you'd have to rezone other areas in order to increase the supply of land. But even if you did that, as long as the land was a lot more expensive than Austin's, the rate of home construction would still be slower. And I think it would be physically impossible for SF to zone its way to a land supply comparable to Austin. Hope that clarifies.
I think you're making the same mistake the article did, focusing on the regulatory environment. My argument is that the zoning and other regulation is not the main reason Austin has more housing starts than San Francisco. The main reason is that land, labor, and materials are cheaper there. SF can upzone and infill to it's heart's content, it won't make land, labor and materials cheaper than Austin.
>There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop.
I'm suggesting nothing of the kind. Nvidia is essentially guaranteeing CoreWeaves return on the chip investment. If someone offered you that deal, regardless of what the investment was, you'd buy as much as you possibly could.
>If demand for compute dries up, CoreWeave and its lenders are going to be on the hook for way, way more than Nvidia is.
True, but irrelevant. The return on investment incentive is independent of how much other debt you have, you'd still buy every unit you could.
>>But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"
>This is such a strange question.
Yet it's the actual question being discussed in the article, and not whether the arrangements are GAAP-compliant. Saying the revenue is real, and that there are "gobs" of it, doesn't make it so. For the record, I'm sure much of it is real. But I'm equally sure that much of the demand is artificial, driven by the business practices we're talking about. I think the root of the problem is that you sincerely believe that if revenue is accounted for in a GAAP-compliant way, it must be real, organic growth driven by real demand. By that standard, you can say that Beanie Baby demand was "real". But it wasn't tied into any underlying economic utility, it was a speculative bubble. So is the AI infrastructure market, just embedded in a much more complex system of deals, as we've been discussing.
>The question you seem to really be asking is: is the demand for chips that is driving this revenue sustainable, or will it collapse, leading to a massive rapid drop in revenue?
Yes, this also is the question really being asked in the article. Among the factors to take into account when judging sustainability are whether the sales are for cash or credit, and whether those sales are being incentivized extrinsically (like, say, guaranteeing ROI).
No---did you read the original article? The comment and the parent will make more sense. Basically the article compares Austin and San Fransisco and attributes the difference in building rates entirely to disparities in regulation. Which is obviously not an accurate framing, for the reasons mentioned in our respective comments.
Your comment is more addressed at affordability, which is largely a function of wealth disparity: as the wealthy get richer with respect to the lower percentiles, they absorb an increasing share of the home market and drive prices up.
I think the definition of an accounting loophole is something that is technically legal but nonetheless suspect because it lets you appear to get something for nothing. According to your best-case scenario, Nvidia helps CoreWeave get a loan it would otherwise not get by guaranteeing revenue for CoreWeave; this allows CoreWeave to borrow money and give it to Nvidia as revenue; bulls point to Nvidia's revenue as a reason to ignore obligations like the CoreWeave guarantee, because after all, just look at all that revenue! And of course it makes GPUs look scarce and valuable, which helps CoreWeave get the next round of debt financing, since presumably the GPUs are the collateral. And the cycle starts again.
I'm not saying these deals are crooked, but the incentives are aligned so that everyone involved is biased toward over-estimating real demand. They are systematically prone to spinning out of control.
>> ...the arrangement incentivizes Coreweave to buy chips it doesn't need
>You state this as fact but this is just cynical speculation on your part.
Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101.
>The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia.
As noted earlier, the $6.3B is a floor, not a ceiling.
>Nvidia will generate about $190 billion in free cash flow this year alone.
Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"
>Austin is surrounded by empty flat land. San Francisco is surrounded by water and was built out many decades ago.
This^^^. The idea that housing starts are solely (or even substantially) impacted by regulation is a case of control bias, attributing disproportionate influence to minor factors we can control (like regulation) over major factors we cannot (land, labor and material costs).
>Screaming "accounting subterfuge!" when this is simple GAAP accounting is a different matter.
Looking back up the thread, I don't see anybody screaming about anything. And I think "accounting subterfuge" is a broad concept that could certainly include GAAP-compliant but nonetheless suspect business practices.
>CoreWeave is buying chips from Nvidia, paying Nvidia full price
I'm not sure this is the case. They are agreeing to pay them some price, it's not clear whether they are getting them for cash or credit but I strongly suspect it's on credit. That doesn't change the GAAP compliance, does it? As I said before, I think they are exploiting an accounting loophole, regardless of whether it is strictly compliant.
Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any potential future obligations as "ordinary business costs". But are they really ordinary, or is this potential obligation to buy compute actually much greater than Nvidia's actual future needs?
>CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms.
According to the article, the $6.3B is a floor, not a ceiling. And it's not clear whether CoreWeave is actually paying cash or getting the GPUs on credit. If the full amount is getting booked, it's an accounting loophole that's being exploited. If GM sells Hertz a million cars, but says "Hey, we'll buy these back if you can't rent them," can GM book all those cars as actual revenue? What if Hertz only has to pay 10% up front and the rest in 5 years?
It sounds like Nvidia is not only supplying GPUs first to neoclouds, it is also supplying them for free if they cannot be resold:
"Furthermore, in the case of CoreWeave, Nvidia has also provided a significant financial backstop against unsold GPU capacity. Under the agreement with an initial value of $6.3 billion, “in instances where [CoreWeave’s] datacenter capacity is not fully utilized by its own customers, NVIDIA is obligated to purchase the residual unsold capacity through April 13, 2032.” In other words, Nvidia is committed to purchasing unsold GPU capacity if CoreWeave is unable to find another buyer. With an initial value of $6.3 billion, there is the potential that the arrangement could become larger over time."
I don't know how Nvidia is handling Coreweave GPU sales revenue in their accounting, but it sounds to me like it should have a pretty big asterisk attached to it. It's more like a consignment arrangement than an actual sale. And it obviously creates a huge incentive for Coreweave to over-order GPUs, since there's no risk (I doubt they're paying cash up front).
This is a specific example of a more general problem: the ability of capital to manufacture demand and not merely satisfy it. An implicit assumption about supply and demand is that they are largely independent market forces, that demand is an organic and emergent phenomenon arising from the desires and ambitions of free individuals, and that supply reacts to demand. But first mass marketing and now hyper-targeted marketing turn that assumption on its head, and given sufficient capital, you can manipulate consumers into buying something that, left to their own devices, they otherwise would not. The harm that this can cause is most easily seen in the addictive context, but it appears throughout the market as a lost opportunity cost: to what more beneficial use would they have put that money had they not been subject to the manipulation?
https://www.energy.gov/cmei/vehicles/articles/fotw-1190-june...
https://advocacy.consumerreports.org/press_release/electric-...
On electricity costs, California is an outlier---most people in the US pay less than half that $0.46/kwh, more like $0.15-0.20/kwh.
https://www.eia.gov/electricity/monthly/epm_table_grapher.ph...
So for most people in the US, an EV will cost half what an ICE vehicle costs to operate.