More Tales From Nvidia: AI Promotion as a Service (Issue #261!)

A few observations: 

*  Per my previous “Tales” in which I made the point regarding the low-quality revenue in this space due to a lot of it coming from venture-backed firms that have no future like Character AI, here is some data. Tweet and subtweet. The first tweet claims 80% of Anthropic’s and Open AI’s revenue comes from startups. I have no idea if this is true or not, but it seems plausible, when you see what these startups are actually doing both on the revenue and expense side. The subtweet from Chamath Palihapitiya of all people verifies these numbers. Then the bar graph he includes also indicates 80% of all venture funding is now going into the AI space. In dollar terms, that is a massive number, and dwarfs the $ invested in the dot-com cycle per the data below, and is also much more concentrated.  The scale at which they and private capital now invest in these startups is now at another level.

A giant hunk of OpenAI and Anthropic revenue is coming from garbage that has no economics, does not need to exist, and only exists due to greater fool theory investing, and will eventually not exist, just like Character AI, which went from $2.7 billion to almost $0 in an instant. Same thing that happened in the dot-com era and sent Exodus and a lot of other things to $0. On top of that, another giant hunk of the revenue that remains for Anthropic and OpenAI comes from distillation, which will have to slow because everything for the most part has already been stolen. Even Meta ($META) apparently did it to build their new model, and has now cut it off, which is funny and ironic.

Silicon Valley really did create its own circular self-fulfilling money-recycling machine. That is one more reason they are all so promotional about this stuff. There is no underlying economics, the only thing they have to rely on is the next greater fool.

* Nvidia’s ($NVDA) Jensen Huang saves the day yesterday by claiming he doesn’t need to backstop CoreWeave ($CRWV), “because their cost of capital is decreasing.” There was a time when you would lose all credibility for saying something obviously that stupid, wrong, and untrue. Because of that, nobody even would even say that sort of thing. Now, it is the exact opposite world. The more crazy and outlandish a statement, the more one is rewarded for it. These guys, and their circle, have become worse than politicians. 

He then went on to extol the virtues of CRWV. If CRWV is so great, why doesn’t NVDA just buy them, capture the value, and solve the whole problem? Because none of it is true and if NVDA were to buy CRWV, they inherit all of the losses, and the balance sheet, and lose the ability to sell into them and recognize all the revenue without the offsetting expense. For all intents and purposes, CRWV is really just an SPV that was created to consume NVDA parts. It is an accounting vehicle built to inflate NVDA revenue and profits, in my view. NVDA invested $100 million into CRWV privately in 2023, and anchored the actual IPO with $250 million, and without their participation, the deal might not have even gotten done.

It is amazing to me GAAP allows for all of this shenanigans. If it didn’t, the internet bubble implosion, where the same stuff was done to lesser of a degree, may not have happened as well. When it is all over, the history books will reference this stuff, but nothing will probably change, and then it will happen all over again with something else in another 10-20 years.

CoreWeave’s CEO claimed his stock was going down due to the market selling his stock irrationally.  If it is irrational for the market to sell his stock, why do he and all the insiders there sell it like nobody’s business? The amount of insider selling there is staggering. 

“Before CoreWeave imploded, its three co-founders had been busy dumping stock, a lot of it, totaling $3.3 billion since the company’s March 2025 IPO. Michael Intrator, Brian Venturo and Brannin McBee sold $2.4 billion this year alone, according to Bloomberg’s new report on corporate filings. Intrator has sold more than $907 million in shares this year. McBee’s sales since the IPO total $1.06 billion, equivalent to 40.4% of his undiluted stake at the listing. Venturo has sold more than $1.2 billion, representing over 35% of his original holding.” 

https://www.zerohedge.com/markets/coreweave-founders-cashed-out-33-billion-meltdown

If it is so irrational to sell the stock, where is the press release from them indicating ALL insider selling will now stop, and the 10b5’s are cancelled? Diversification is no longer an excuse. They have taken enough money out. I will cut these guys a break. The stock peaked at $184. I will give them a break and allow them to include the term that no selling is allowed until the stock gets back to $150, which is still well below the all time high.

Position: Short CRWV (S)

Upside, Downside Movers in the Morning

Upside

– $TCRT +25.0% (extends its surge after closing a PAH-focused biotech acquisition and securing about $350M of financing)

– $NCPL +19.0% (regains Nasdaq minimum-bid compliance)

– $SITC +18.0% (declares a $3.00 special cash distribution after an asset sale and plans to delist from the NYSE)

– $FFR +9.0% (launches the $2,490 FF Nova humanoid robot and outlines a proposed roughly $200M robotics combination)

– $ASM +6.5% (Roth/MKM upgrades to Buy from Neutral and raises its target to $8)

– $SMTC +4.0% (raises Q3 sales, operating-margin and EPS outlooks at its data-center analyst day)

– $TSLA +3.0% (unveils a redesigned Roadster featuring rocket-style thrusters)

– $STLA +3.0% (better-than-feared Q3 shipment update showed consolidated volumes down just 1% year over year)

– $FRO +3.0% (tanker shares rebound as geopolitical disruption continues to support shipping rates)

– $RBRK +3.0%, $VRNS +2.5% (cybersecurity names rise after VRNS agreed to a $6.3B all-cash acquisition)

– $NOK +2.5%, $AAOI +2.0% (networking and optical names gain after SMTC raised its data-center outlook)

Downside

– GUTS -53.0% (REMAIN-1 met its six-month co-primary endpoint, but 5.1% weight regain versus 8.2% for sham and a still-pending one-year co-primary fell short of elevated expectations)

– $JAGX -29.0% (special preferred-stock dividend was paid, with each preferred share set to convert into five common shares on November 2, intensifying dilution concerns)

– $MDXH -17.0% (suspends FY revenue guidance after preliminary Q3 revenue of about $22.7M)

– $TLK -15.0% (Indonesia ADR slumps after a warning that the country could face an emerging-market index downgrade)

– $CRWV -5.0%, $IREN -3.5%, $NBIS -2.5% (AI-infrastructure names extend their selloff on debt-funded buildout and profitability concerns)

– $TRV -4.0% (Q3 beat with lower-than-expected catastrophe losses, but shares sell the news after elevated expectations)

– $SKHY -3.5%, $SNDK -2.5%, $MU -2.5%, $ALAB -2.5%, $WDC -2.0%, $AMD -2.0% (chip and storage names weaken as the AI trade de-risks amid higher-rate concerns)

– $IONQ -2.5%, $ASTS -2.5% (speculative long-duration growth names weaken as rate-hike expectations rise)

– $MSTR -2.5%, $HUT -2.0%, $CRCL -1.5% (crypto-linked shares trade lower amid broad risk-off positioning)

Tech Trade Turns Ugly

Hot inflation data burns up AI, tech and small-cap stocks as CoreWeave unravels and ‘neocloud’ names in ‘crash mode’; also the chart looks precarious.

What My Gnome Is Hearing

*  The Bull Market movie is in reverse today… 

“Buyers live higher and sellers live lower.”

– Kass Diary

As I have mentioned market structure has changed meaningfully in the last decade.

Passives (ETFs) control float and the Pods (at multi-strategy Hedge Funds) control the marginal price.

That said, high above the Alps my Gnome is hearing that several large Pods have blown up and have been liquidating today — especially in high-beta and high-yield positions. (That is partly the reason for my covers in private equity, Nvidia ($NVDA) and CoreWeave ($CRWV).) 

This, in turn, causes (passive) outflows, which forces passives (at the margin) to sell (their overowned and overweighted names).

Thus, today’s market schmeissing.

We learned from the Leopold (Situational Unawareness) and by past occurrences that forced selling often makes a bottom.

However, today’s selling, by multiple Pods seems less likely to produce a “V” type reaction/recovery. 

Position: None  

Housekeeping Items

I have taken profits in these two shorts just now:

* $NVDA $224.25 (-$4.05 today)

* $CRWV $67.53 (-$10.25  today) 

Position: None