More Tales From Nvidia: Circular Deals, Insider Sales, Debt-to-AI Production ‘Units’ (Issue # 231!)
If you’re playing a poker game and you look around the table and can’t tell who the sucker is, it’s you.
– Paul Newman
First, look at the picture below: They are going on sale now! Special offer, get it while it’s hot!
This, of course, is consistent with token prices cratering. Equity prices, seemingly do the opposite, which is contradictory, but does not make much sense. Such is life…
Amazon’s management tells investors how great things are, then Jeff Bezos turns around and files to sell $4 billion of stock. The sellers of stock (almost every insider at every tech company whose stock has ripped) are seemingly much more aware of the underlying fundamentals and valuations than the buyers of stock.
The incentive structure for executives rewards them in huge form for behaviors that drive their stock prices up over the short term. Once the stock prices go up, they will do anything to keep the shell game going, as evidenced by all of the circular financing, so they can keep selling more stock at elevated prices. That is their incentive structure. If it all blows up, they still come out way ahead. The money from the stock sales stays in the bank, they keep their jobs, fire all the extra people they hired, and exempt themselves from all of the fallout. Quite the deal if you can get it.
Regarding the sale offer below, is a very interesting analysis/chart which shows the incremental return on capital for the hyperscalers is cratering. In the June-ending quarter, the group increased its last 12 months earnings before interest and taxes 20% year over year. It took almost a 2-times (38%) increase in deployed capital to achieve that growth. This reminds me of the U.S. economy overall and the amount of incremental dollars of government debt it takes to increase a unit or dollar of GDP!
One would think that some very hard spending decisions will have to be made soon, because unlike the U.S. government, the spenders are not the world’s reserve currency. This is all prior to token prices cratering (in fact it included the benefit of token maxxing in the June quarter) and irrespective of the fact that an enormous amout of demand is coming from businesses like Open AI which are far from self-sustaining entities.
If the spigot gets turned off for any of these players… look out below (!):
Further on the issue of token growth (or lack thereof) and massive price cutting, I would not be surprised if the entire industry turns into something not much different from an electric utility. It seems there should be some sort of intelligent router that lets customers blindly procure tokens, on the basis of good enough to do the job at the best possible price. All of it, including the models, is a pure commodity. Instead of making a choice and buying from a particular provider, it should just be the best deal available at the moment. Ex-government intervention (who knows I cannot call that), it seems this is the logical outcome for the entire industry.
It may be one giant undifferentiated commodity — both the compute and the model layers. It should be purchased by the drink, based on the best available price. It is not challenging for it to evolve this way from a tech perspective either, it is easy to do:
Positions: None.
