It’s a shame we won’t have Anthony Bourdain to explain this move to us in the AI implosion docu-flick that comes out in 2029. It’s not stale fish, it’s fish stew! It’s a whole new thing!
This looks just like financial engineering / creative accounting; to comply with things like GAAP rules and appearing less capex heavy, while functionally having the same effect.
In the end, Amazon is still going to be the ones leasing and hence using the chips; nominally the 'owner' changes hands, and it looks like a bond (with a small equity component) in just about every way, except through some legal and accounting magic, it doesn't go on their balance sheet.
Yes, Amazon is terrified of the balance sheet implications of what’s unfolding. The only reason you’d un-vertically integrate yourself like this is if you viewed these assets as at serious risk of being a smoking hole in the ground in a few years
The WSJ had some great reporting on the SPV games recently and found $3 trillion in liabilities being kept off balance sheets by playing these sorts of things. However this time around it seems like most folks aren’t getting fooled.
> However this time around it seems like most folks aren’t getting fooled.
What do you mean? These vehicles only exist if investors buy into them. Are you saying they were "fooled" by buying these investments?
Their existence is not a secret, which is why those journalists were able to find them and add them up. These aren't hidden secrets being hidden from investors.
I see a lot of theories that this is being done to prop up stock prices by hiding debt and making the balance sheet look better, but large investors understand these financial engineering operations and factor it into their decisions to buy and sell stock.
I do think it's funny that so many people think these reporters have uncovered a scandalous secret that all of the investors missed. The way the stock prices didn't collapse after that reporting is a good clue that the investors in these companies were already aware of the situations.
> I see a lot of theories that this is being done to prop up stock prices by hiding debt and making the balance sheet look better, but large investors understand these financial engineering operations and factor it into their decisions to buy and sell stock.
Frankly I don’t think so. I don’t think investors factor this in. I have, anecdotally, seen simple financial engineering prop up stock prices. From what I’ve seen, the big investors look just at the numbers. They don’t even really consider strategy very much. Just making your numbers look better is enough to, at least temporarily, greatly inflate your stock.
To put it bluntly, there’s a lot of dumb money floating around in big funds and family offices trying to meet their mandate to “get me some of that AI in our portfolio.” With public equities limited and many funds not allowed to invest in private equities placements they moved into bonds.
Those folks initially viewed bonds as a safe bet just like folks thought mortgages were a safe bet. However if it turns out they just bought into a mess of “sub-prime” AI bro fantasies and these bonds go bad they’re in for a world of hurt just like 2008 when folks stopped paying their mortgages.
As this all starts to unwind it’s going to be fun watching these same folks run for the exits.
Yup, 100% financial engineering. Converting capex into opex so their balance sheet looks a particular way in the market, and probably shedding some other liabilities in the process. Other than the amount of money, this is so common it would barely be noteworthy.
> except through some legal and accounting magic, it doesn't go on their balance sheet.
This part is confusing a lot of people. This isn't a secret account trick that makes debt go 'poof' without any consequences.
Companies have debts, assets, and liabilities. They can't keep the assets, move the debt to another vehicle, and do it all without incurring any liabilities.
They move the GPU assets into the SPV. Their assets on the books are decreased.
In return, they get funds they can use to pay down debts, buy more assets (more GPUs), or keep on the balance sheet.
In the process, they incur liabilities because they have to continue paying the SPV to lease the GPUs.
EDIT: Since it wasn't clear, debts are a subset of liabilities. They get the debt off the book, but they trade it for a liability because they are contractually obligated to continue paying to use those GPUs. This is why "keeping the debt off the books" isn't a dramatic game-changing reveal. They're still paying.
A lot of the shallow reporting and comments avoid discussing these tradeoffs because it feels more scandalous that way. It's not unlike when we're discussing homeowners and someone interrupts to say "Well actually, don't you know, it's the bank who owns the home!" as if that completely changes the situation.
Debt is a liability - putting it separate in the way you have signals your knowledge is probably mangled and you’re stepping way out of your domain of expertise.
Debts are a subset of liabilities, yes. All debts are liabilities, but not all liabilities are debts. Understanding this is the point.
Anyone who knows basic accounting will understand this. I'm trying to explain this in basic terms to an audience who isn't understanding these deals, not from smug drive-by comments like yours that attack people and add nothing to the conversation.
The reason I separated debts out from liabilities is because a lot of these conversations are specifically talking about how this is a mechanism to keep debt, specifically, off the balance sheet.
There are more types of liabilities than debts.
Are you the same person who keeps creating throwaway accounts to attack comments on these posts? There's an awful lot of green text ad-hominem attacks happening in this thread. The other new account attacking my comments also has a name that looks like someone smashed the i and e keys on the keyboard: https://news.ycombinator.com/user?id=eiieke
We could have Selena Gomez explain to us how the rules that were put in place to stop the degenerate big-bank side-bets last time (ESLR) were repealed right before the next time (April 2026). She's only 34, so she'll probably be around for the next few cycles of this, too.
Is all this a tax evading thing? so you move all those assets to the other company, the datacenter that is installed on a place that gives them a lot of tax advantages because "it will create thousands of work positions" gets then to be assigned to a shell company that declares the whole thing experimental and gets a lot of tax benefits that may result in "tax returns" paid from taxes from the people? LOL
I really didn't think it from the tax angle. In my mind they are doing this to move chunks of meaningful debt from their balance sheet and with it, move the risk elsewhere. These are outside investors who will own the GPUs and amazon will pay a rent to use those GPUs. It's interesting why amazon would do this, and not just amazon- meta, google and everyone else is using SVPs.
No, it’s not solely for taxes, they use those SPVs to protect their debt rating, they can raise debt via a vehicle they control without having to add it to their balance sheet. It’s exactly what meta has been doing. They want to avoid being the next oracle.
As far as I’m aware it’s all legal, but also shady and doesn't inspire confidence. You wouldn’t be trying to obfuscate your debts if you didn’t think transparency to your investors would make you look bad
It shouldn't be this way, but DDR4 is perfectly fine and will last for years. RAM generally has low failure rates; and prices are relatively better on the used market. If you want ECC, many used DDR4 ECC sticks seem like a 'relative bargain' compared to how much DDR5 ECC goes for.
As for GPU, AMD hasn't raised prices by as much; and honestly my 3060 12GB from many, many years ago plays absolutely every single game I want to play at 1440p; with nice visuals. Yeah, I can't pump everything to ultra, and maybe I need some DLSS for the most demanding games, but it's far cry from "old" or "obsolete".
In terms of actual experience or enjoyment I get from video games, I'm not missing out on anything.
It's legitimate to feel disappointed and upset at the current state of the PC market, but slightly older desktop hardware is still more than plenty fast enough.
I own both a MBP M5 Pro 48GB, and a MacBook Neo, and I use my Neo probably 2x as much as my MBP.
> As for GPU, AMD hasn't raised prices by as much; and honestly my 3060 12GB from many, many years ago plays absolutely every single game I want to play at 1440p; with nice visuals.
I also have DDR4 and an ancient 1080 8GB, both perform well at 1440p. I built the box months before cryptotokens went exponential in 2017 and it has carried me ever since.
Chips are automatically a depreciating asset - is there a historical basis for understanding how that affects companies, and how that will affect GPU-centric companies?
There's a pretty broad consensus that useful lifespan is only a few years, certainly no more than 7 and probably less. As each new generation of chips becomes more energy efficient at some point it's no longer economically viable to continue operating the previous generation even if they're still functional.
Not a lot of public data about things like that at scale, but there are some things like the Meta Llama report that had ~ 9% annualized gpu failure rate while training Llama 3. Not 100% clear from the Meta report if those are dead hardware or just 'unhappy' because they just put them into the 'interruption caused by' bucket.
Would be interested if anyone had better data on actual live failure rates of h100 or better class gpu that suck so much power.
Chip assets are a vanishingly small fraction of the valuation of these companies. If they were to depreciate instantly and need to be replaced at cost every year (assuming the fabs had capacity to produce them) it wouldn't move the needle.
This is like asking if there's a historical basis for understanding how the depreciation of garden sprinklers affects home value appreciation.
'Everything is a depreciating asset' is a fair statement - but things depreciate at exponentially different levels. A lot of things can be bought today which can be used for the same purpose just as efficiently in 10 years - and there are those which do not meet that criteria.
Houses depreciate without frequent and expensive maintenance. It's the land underneath the house that appreciates. In HCOL areas, wealthy people frequently buy residential real estate expecting to tear down the existing house and build a new one.
(There are some limited circumstances where a house can appreciate due to permitting constraints or rapid rises in construction costs, but those are rare and temporary.)
But zoning hell can sometimes make it apply to the housing itself too! For example, where I used to live, tons of housing was marked as "historic" and you literally couldn't tear it down or significantly amend it.
> the deal that would move thousands of Grace Blackwell chips it is installing in US data centres into a special-purpose vehicle
> The cloud giant will then lease the advanced AI chips back from the SPV
I mean nothing is disappearing off the balance sheet. They have this lease agreement they will need to pay.
I would watch for what they do with the freed up cash though. If they use these GPUs they already own as collateral to *double down* on buying more GPUs then we got some serious downturn risk building because its leveraged.
Btw this is like 100% what Jensen was saying when he said gpu compute would be an "investable asset class".
And this lease agreement is perpetual right? Amazon can't just go and get a different set of hardware themselves or get another set of ignorant investors to buy the new hardware and leave these investors holding the bag?
That lease agreement is hold up more hope than god here my guy.
Our generation's very own mortgage-backed securities.
Now we just need ratings on the GPU bundles, and eventually a clever way to rebundle the lower rated bundles into something that somehow comes out AAA.
(for those unaware that's how the sub-prime mortgage crisis of 2008 happened)
I would compare it to reselling mortgage bundles before 2008 crash. It is about moving risks to those who are more comfortable with it. Not a great sign but doesn't really indicate that sky is going to fall any time soon.
Yes. This is the bit of the movie where everyone is offloading crap off their balance sheets to limit the blast radius before allowing the market to reprice anything. Once the big players have cleaned up their balance sheet they’ll let the bottom of the market drop out.
Expect earnings calls to become a lot more skeptical about the future of AI once the balance sheet cleanup completes.
Sounds like a ponzi type scheme to me. The will "sell" installed existing chips to investors and then lease them back. So when the chips are obsolete or replaced, what will happen to the investment ?
Sounds very shady to me. But also sounds like what companies do with real estate, except land does not get obsoleted.
It’s atypical to do leaseback for objects with a shelf life that’s as short as that of GPUs, but in the end, leaseback is not very different from long term renting.
It does signal that Amazon needs more cash fairly soon, but _if_ that is because they plan to invest lots of money, that need not be a problem.
If, on the other hand, it’s because they’re running out of cash, that is a problem, as leaseback solves that in the short term, but makes that problem more dire in the future.
if investors buy the chips and lease them back... and the investors are also owners of the company via shares... ??? a lot of the investors is pop amd mom retirement funds... is this a way to funnel even more people money into the friking machine?
> Amazon plans to offer an equity stake of up to 10% in the vehicle, the newspaper said.
10% is not a lot.
There is a lot of investment money looking for any AI investment right now. Family offices through large institutional investors have made mandates to allocate to AI investments.
Amazon is in a perfect position to scoop up some of those investment dollars. This is an easy way for them to take advantage of the market conditions.
The doomers are going to assume this is a sign of bubble bursting, but I think Amazon is being smart and weighing their options for financing. If you haven’t kept up with the markets, rates have gone up a lot. If investors are willing to hand you cash to finance your buildout in exchange for something like this, it’s worth considering.
A somewhat more accurate headline would be "Amazon seeks to leaseback a bunch of chips, many of which it's using, but some are just sitting around in a warehouse". Entirely sensible move on their part, and no, it's not a sign of a bubble bursting; it's a sign of nVidia chips becoming a tradeable, fungible commodity, which is an extremely good thing for nVidia.
I'm just trying to understand this more, can someone please give more insight?
So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
This is creating a SPV company, have that SPV take out loans, have the SPV buy the hardware still installed in Amazon's datacenters, and then Amazon rents the hardware they previously bought and installed from the SPV?
This sounds like an expensive shell game paying expensive finance bros to make some numbers on papers look a little different. What do they really gain from this? Is this just because Amazon wants ~$8B in cash today, like taking a cash-out refinancing on your home? Doesn't Amazon have over a hundred billion dollars in cash on hand? If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
> So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
Bought, yes. Installed and in use? We don't know, but probably on a warehouse waiting for a place to be installed, for an energy source to be build.
Put the GPUs in another business, sell it to investors, and watch it unfold.
> The chips in the proposed deal were bought or leased by Amazon. They are installed in more than a dozen US data centres across five states, including Nevada and Virginia, the report said.
The "warehouses full of GPUs" thing might be the most absurd of the AI economy conspiracy theories.
Actually no, the hyperscalers have been saying this themselves. They have bought chips they can’t power on and use because of issues getting enough power and building out data centers. How much of NVidia’s revenue is actually just selling chips that go sit on a shelf somewhere is a closely guarded secret at this point.
If that were the case, the hyperscalers would be ramping down capex, not increasing it.
The not-in-service numbers on the financials are just the normal lag, and have been stable in proportion to capex for years, to well before the start of the boom.
> why would you do a cash-out refinancing at a time of high interest rates?
If future interest rates are much worse much more quickly, it can be profitable.
IE: get a bunch of cash today locked at 10%, then lend out the money next year at 20%.
I dunno if that's the plan but there's so many possibilities in finance that it's hard to get what someone else is thinking even if their moves are public.
What they gain is financial insulation. The SPV owns the hardware. It doesn't even own the physical building. These companies have managed to raise debt secured only by the GPUs. So, if/when this all goes south, the investors can only make a claim against the GPUs. Not the physical building and certainly not Amazon itself. That's what's going on here.
This is also why SPVs are off balance sheet because they aren't really a liability to Amazon (or Google or Microsoft).
The shocking part is that investors are taking on this risk to buy GPUs that depreciate wildly and fail at an annual rate of (supposedly) ~9% for a 7-8% return.
If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
Maybe the rates to do leasebacks on physical items are better, than rates for loans to build datacenters?
Could be leasing has large tax(deductible) advantages too.
Also interest rates aren't high, they're still low taken over historical trends. Thos may mean that tax deductions, written decades ago, do well still via leasing vs depreciating the hardware.
If they're wanting to focus on using GPUs instead of playing finance games, then why are they spending all the time playing finance games on $8B when they've got >$100B cash on hand?
It’s starting… buckle up folks.
It’s a shame we won’t have Anthony Bourdain to explain this move to us in the AI implosion docu-flick that comes out in 2029. It’s not stale fish, it’s fish stew! It’s a whole new thing!
This looks just like financial engineering / creative accounting; to comply with things like GAAP rules and appearing less capex heavy, while functionally having the same effect.
In the end, Amazon is still going to be the ones leasing and hence using the chips; nominally the 'owner' changes hands, and it looks like a bond (with a small equity component) in just about every way, except through some legal and accounting magic, it doesn't go on their balance sheet.
Yes, Amazon is terrified of the balance sheet implications of what’s unfolding. The only reason you’d un-vertically integrate yourself like this is if you viewed these assets as at serious risk of being a smoking hole in the ground in a few years
The WSJ had some great reporting on the SPV games recently and found $3 trillion in liabilities being kept off balance sheets by playing these sorts of things. However this time around it seems like most folks aren’t getting fooled.
> However this time around it seems like most folks aren’t getting fooled.
What do you mean? These vehicles only exist if investors buy into them. Are you saying they were "fooled" by buying these investments?
Their existence is not a secret, which is why those journalists were able to find them and add them up. These aren't hidden secrets being hidden from investors.
I see a lot of theories that this is being done to prop up stock prices by hiding debt and making the balance sheet look better, but large investors understand these financial engineering operations and factor it into their decisions to buy and sell stock.
I do think it's funny that so many people think these reporters have uncovered a scandalous secret that all of the investors missed. The way the stock prices didn't collapse after that reporting is a good clue that the investors in these companies were already aware of the situations.
> I see a lot of theories that this is being done to prop up stock prices by hiding debt and making the balance sheet look better, but large investors understand these financial engineering operations and factor it into their decisions to buy and sell stock.
Frankly I don’t think so. I don’t think investors factor this in. I have, anecdotally, seen simple financial engineering prop up stock prices. From what I’ve seen, the big investors look just at the numbers. They don’t even really consider strategy very much. Just making your numbers look better is enough to, at least temporarily, greatly inflate your stock.
To put it bluntly, there’s a lot of dumb money floating around in big funds and family offices trying to meet their mandate to “get me some of that AI in our portfolio.” With public equities limited and many funds not allowed to invest in private equities placements they moved into bonds.
Those folks initially viewed bonds as a safe bet just like folks thought mortgages were a safe bet. However if it turns out they just bought into a mess of “sub-prime” AI bro fantasies and these bonds go bad they’re in for a world of hurt just like 2008 when folks stopped paying their mortgages.
As this all starts to unwind it’s going to be fun watching these same folks run for the exits.
Yup, 100% financial engineering. Converting capex into opex so their balance sheet looks a particular way in the market, and probably shedding some other liabilities in the process. Other than the amount of money, this is so common it would barely be noteworthy.
> except through some legal and accounting magic, it doesn't go on their balance sheet.
This part is confusing a lot of people. This isn't a secret account trick that makes debt go 'poof' without any consequences.
Companies have debts, assets, and liabilities. They can't keep the assets, move the debt to another vehicle, and do it all without incurring any liabilities.
They move the GPU assets into the SPV. Their assets on the books are decreased.
In return, they get funds they can use to pay down debts, buy more assets (more GPUs), or keep on the balance sheet.
In the process, they incur liabilities because they have to continue paying the SPV to lease the GPUs.
EDIT: Since it wasn't clear, debts are a subset of liabilities. They get the debt off the book, but they trade it for a liability because they are contractually obligated to continue paying to use those GPUs. This is why "keeping the debt off the books" isn't a dramatic game-changing reveal. They're still paying.
Investors know this. Anyone who understands basic financial accounting knows this.
A lot of the shallow reporting and comments avoid discussing these tradeoffs because it feels more scandalous that way. It's not unlike when we're discussing homeowners and someone interrupts to say "Well actually, don't you know, it's the bank who owns the home!" as if that completely changes the situation.
“ Companies have debts, assets, and liabilities.”
Debt is a liability - putting it separate in the way you have signals your knowledge is probably mangled and you’re stepping way out of your domain of expertise.
Happens here pretty often.
Debts are a subset of liabilities, yes. All debts are liabilities, but not all liabilities are debts. Understanding this is the point.
Anyone who knows basic accounting will understand this. I'm trying to explain this in basic terms to an audience who isn't understanding these deals, not from smug drive-by comments like yours that attack people and add nothing to the conversation.
The reason I separated debts out from liabilities is because a lot of these conversations are specifically talking about how this is a mechanism to keep debt, specifically, off the balance sheet.
There are more types of liabilities than debts.
Are you the same person who keeps creating throwaway accounts to attack comments on these posts? There's an awful lot of green text ad-hominem attacks happening in this thread. The other new account attacking my comments also has a name that looks like someone smashed the i and e keys on the keyboard: https://news.ycombinator.com/user?id=eiieke
For the sake of RAM prices I wish you were correct, but I doubt it. Amazon is more likely just making some cash in a very rational way.
We could have Selena Gomez explain to us how the rules that were put in place to stop the degenerate big-bank side-bets last time (ESLR) were repealed right before the next time (April 2026). She's only 34, so she'll probably be around for the next few cycles of this, too.
*staring blankly, mumbling "leave Selena alone" over and over and over again as I walk out into the ocean*
It's a reference to The Big Short, where Selena Gomez guested to explain Credit Default Swaps.
(If you haven't seen it, you might think I'm joking. I'm not, and it's an amazing film.)
Such a pity, Amazon has to throw away unwanted chips here while there are so many starving AI labs in China!
https://www.tomshardware.com/tech-industry/artificial-intell...
They vibe-coded an asset class using the same chips they’re leasing back to themselves. This is the new dogfooding.
We’ll actually have AI Anthony Bourdain doing it.
AI Bourdain in the AI implosion movie would be quite ironic!
Any moment now, guys, seriously, this time for realsies!
So how many puts did you buy?
are they trying to pull off what meta did?
link - https://www.reuters.com/legal/transactional/meta-set-clinch-...
Is all this a tax evading thing? so you move all those assets to the other company, the datacenter that is installed on a place that gives them a lot of tax advantages because "it will create thousands of work positions" gets then to be assigned to a shell company that declares the whole thing experimental and gets a lot of tax benefits that may result in "tax returns" paid from taxes from the people? LOL
how many dips are there in that scheme?
I really didn't think it from the tax angle. In my mind they are doing this to move chunks of meaningful debt from their balance sheet and with it, move the risk elsewhere. These are outside investors who will own the GPUs and amazon will pay a rent to use those GPUs. It's interesting why amazon would do this, and not just amazon- meta, google and everyone else is using SVPs.
No, it’s not solely for taxes, they use those SPVs to protect their debt rating, they can raise debt via a vehicle they control without having to add it to their balance sheet. It’s exactly what meta has been doing. They want to avoid being the next oracle.
As far as I’m aware it’s all legal, but also shady and doesn't inspire confidence. You wouldn’t be trying to obfuscate your debts if you didn’t think transparency to your investors would make you look bad
Is it really obfuscation, or is it finding a greater fool to hold the bag when Bedrock demand plummets?
It's the same picture.
https://archive.is/Bswg2
Meanwhile I can't afford a new gpu or ram...or cpu now.
CPUs are cheap. No one is buying them because the RAM to go along with them is so expensive.
It shouldn't be this way, but DDR4 is perfectly fine and will last for years. RAM generally has low failure rates; and prices are relatively better on the used market. If you want ECC, many used DDR4 ECC sticks seem like a 'relative bargain' compared to how much DDR5 ECC goes for.
As for GPU, AMD hasn't raised prices by as much; and honestly my 3060 12GB from many, many years ago plays absolutely every single game I want to play at 1440p; with nice visuals. Yeah, I can't pump everything to ultra, and maybe I need some DLSS for the most demanding games, but it's far cry from "old" or "obsolete".
In terms of actual experience or enjoyment I get from video games, I'm not missing out on anything.
It's legitimate to feel disappointed and upset at the current state of the PC market, but slightly older desktop hardware is still more than plenty fast enough.
I own both a MBP M5 Pro 48GB, and a MacBook Neo, and I use my Neo probably 2x as much as my MBP.
> As for GPU, AMD hasn't raised prices by as much; and honestly my 3060 12GB from many, many years ago plays absolutely every single game I want to play at 1440p; with nice visuals.
I also have DDR4 and an ancient 1080 8GB, both perform well at 1440p. I built the box months before cryptotokens went exponential in 2017 and it has carried me ever since.
DDR4 prices are also impacted. The price is x3 compared a year ago.
Because you’re poor?
What do you get out of making comments like this?
Chips are automatically a depreciating asset - is there a historical basis for understanding how that affects companies, and how that will affect GPU-centric companies?
Nvidia A100 80 GB was released in 2020 so 6 years ago. Cost for new was $15,000, you can buy used now for $15,000–$25,000.
used cars also appreciated in value during the covid supply chain crisis.
The point is it is temporary and long term they are still a depreciating asset.
There is no consensus on AI chips lifespan as far as I’m aware
There's a pretty broad consensus that useful lifespan is only a few years, certainly no more than 7 and probably less. As each new generation of chips becomes more energy efficient at some point it's no longer economically viable to continue operating the previous generation even if they're still functional.
And also just the flat hardware failure rate.
Not a lot of public data about things like that at scale, but there are some things like the Meta Llama report that had ~ 9% annualized gpu failure rate while training Llama 3. Not 100% clear from the Meta report if those are dead hardware or just 'unhappy' because they just put them into the 'interruption caused by' bucket.
Would be interested if anyone had better data on actual live failure rates of h100 or better class gpu that suck so much power.
https://ai.meta.com/research/publications/the-llama-3-herd-o... https://www.trendforce.com/news/2024/10/31/news-datacenter-g...
Not entirely automatic it would seem to me, my GPU I bought last year is today worth double what I paid for it.
Chip assets are a vanishingly small fraction of the valuation of these companies. If they were to depreciate instantly and need to be replaced at cost every year (assuming the fabs had capacity to produce them) it wouldn't move the needle.
This is like asking if there's a historical basis for understanding how the depreciation of garden sprinklers affects home value appreciation.
Then how do you explain the capitalization of nVidia?
Nvidia isnt playing buy/hold on these chips, but make/sell
Everything is a depreciating asset, even cash.
'Everything is a depreciating asset' is a fair statement - but things depreciate at exponentially different levels. A lot of things can be bought today which can be used for the same purpose just as efficiently in 10 years - and there are those which do not meet that criteria.
The Anglosphere: Nuh-uh! Not houses when you take in a constant stream of new people and refuse to ever ever build anything new!
Houses depreciate without frequent and expensive maintenance. It's the land underneath the house that appreciates. In HCOL areas, wealthy people frequently buy residential real estate expecting to tear down the existing house and build a new one.
(There are some limited circumstances where a house can appreciate due to permitting constraints or rapid rises in construction costs, but those are rare and temporary.)
That's a good point and I agree.
But zoning hell can sometimes make it apply to the housing itself too! For example, where I used to live, tons of housing was marked as "historic" and you literally couldn't tear it down or significantly amend it.
It’s also happening everywhere in Western Europe fwiw
Nothing to see here folks. Nothing at all.
> the deal that would move thousands of Grace Blackwell chips it is installing in US data centres into a special-purpose vehicle
> The cloud giant will then lease the advanced AI chips back from the SPV
I mean nothing is disappearing off the balance sheet. They have this lease agreement they will need to pay.
I would watch for what they do with the freed up cash though. If they use these GPUs they already own as collateral to *double down* on buying more GPUs then we got some serious downturn risk building because its leveraged.
Btw this is like 100% what Jensen was saying when he said gpu compute would be an "investable asset class".
And this lease agreement is perpetual right? Amazon can't just go and get a different set of hardware themselves or get another set of ignorant investors to buy the new hardware and leave these investors holding the bag?
That lease agreement is hold up more hope than god here my guy.
Also today: Nvidia stock hits new all-time high
Our generation's very own mortgage-backed securities.
Now we just need ratings on the GPU bundles, and eventually a clever way to rebundle the lower rated bundles into something that somehow comes out AAA.
(for those unaware that's how the sub-prime mortgage crisis of 2008 happened)
Noise.
When problems with AI investments become a problem the stock market will already communicate it, news will report it after the fact, not before.
Indeed, the stock market never ingests news to make decisions
Capital-intensive business + smart lawyers and accountants = exotic financing schemes. Not a new thing, is it?
The beginning of the bubble deflate?
I would compare it to reselling mortgage bundles before 2008 crash. It is about moving risks to those who are more comfortable with it. Not a great sign but doesn't really indicate that sky is going to fall any time soon.
Yes. This is the bit of the movie where everyone is offloading crap off their balance sheets to limit the blast radius before allowing the market to reprice anything. Once the big players have cleaned up their balance sheet they’ll let the bottom of the market drop out.
Expect earnings calls to become a lot more skeptical about the future of AI once the balance sheet cleanup completes.
Sounds like a ponzi type scheme to me. The will "sell" installed existing chips to investors and then lease them back. So when the chips are obsolete or replaced, what will happen to the investment ?
Sounds very shady to me. But also sounds like what companies do with real estate, except land does not get obsoleted.
Companies also do leaseback with real estate, airplanes and industrial equipment (https://en.wikipedia.org/wiki/Leaseback).
It’s atypical to do leaseback for objects with a shelf life that’s as short as that of GPUs, but in the end, leaseback is not very different from long term renting.
It does signal that Amazon needs more cash fairly soon, but _if_ that is because they plan to invest lots of money, that need not be a problem.
If, on the other hand, it’s because they’re running out of cash, that is a problem, as leaseback solves that in the short term, but makes that problem more dire in the future.
if investors buy the chips and lease them back... and the investors are also owners of the company via shares... ??? a lot of the investors is pop amd mom retirement funds... is this a way to funnel even more people money into the friking machine?
> Amazon plans to offer an equity stake of up to 10% in the vehicle, the newspaper said.
10% is not a lot.
There is a lot of investment money looking for any AI investment right now. Family offices through large institutional investors have made mandates to allocate to AI investments.
Amazon is in a perfect position to scoop up some of those investment dollars. This is an easy way for them to take advantage of the market conditions.
The doomers are going to assume this is a sign of bubble bursting, but I think Amazon is being smart and weighing their options for financing. If you haven’t kept up with the markets, rates have gone up a lot. If investors are willing to hand you cash to finance your buildout in exchange for something like this, it’s worth considering.
You’re grasping at straws with this - your unsubstantiated claims are worse than the doomers
What unsubstantiated claims? The 10% stake quote came from the article.
The fact that investors are looking for AI investments right now is not a secret.
EDIT: Did you really register a throwaway account just to post this comment?
I came here to post a question, which you answered. Thanks!
I'll take a pallet of Nvidia DGX H200s for $200 + shipping. Let me know when I can order them by weight on ebay.
Earlier: https://news.ycombinator.com/item?id=49930027
A somewhat more accurate headline would be "Amazon seeks to leaseback a bunch of chips, many of which it's using, but some are just sitting around in a warehouse". Entirely sensible move on their part, and no, it's not a sign of a bubble bursting; it's a sign of nVidia chips becoming a tradeable, fungible commodity, which is an extremely good thing for nVidia.
2008 is calling again - SPV's of subprime mortages.
well that's one way to guarantee I can get a GPU reservation on AWS now
I'm just trying to understand this more, can someone please give more insight?
So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
This is creating a SPV company, have that SPV take out loans, have the SPV buy the hardware still installed in Amazon's datacenters, and then Amazon rents the hardware they previously bought and installed from the SPV?
This sounds like an expensive shell game paying expensive finance bros to make some numbers on papers look a little different. What do they really gain from this? Is this just because Amazon wants ~$8B in cash today, like taking a cash-out refinancing on your home? Doesn't Amazon have over a hundred billion dollars in cash on hand? If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
Looks like a sale-leaseback. Similar in spirit to an asset-backed loan.
> So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
Bought, yes. Installed and in use? We don't know, but probably on a warehouse waiting for a place to be installed, for an energy source to be build.
Put the GPUs in another business, sell it to investors, and watch it unfold.
We do in fact know:
> The chips in the proposed deal were bought or leased by Amazon. They are installed in more than a dozen US data centres across five states, including Nevada and Virginia, the report said.
The "warehouses full of GPUs" thing might be the most absurd of the AI economy conspiracy theories.
Actually no, the hyperscalers have been saying this themselves. They have bought chips they can’t power on and use because of issues getting enough power and building out data centers. How much of NVidia’s revenue is actually just selling chips that go sit on a shelf somewhere is a closely guarded secret at this point.
If that were the case, the hyperscalers would be ramping down capex, not increasing it.
The not-in-service numbers on the financials are just the normal lag, and have been stable in proportion to capex for years, to well before the start of the boom.
> why would you do a cash-out refinancing at a time of high interest rates?
If future interest rates are much worse much more quickly, it can be profitable.
IE: get a bunch of cash today locked at 10%, then lend out the money next year at 20%.
I dunno if that's the plan but there's so many possibilities in finance that it's hard to get what someone else is thinking even if their moves are public.
My guess is if AI hardware values crash then the new company can just go bankrupt.
What they gain is financial insulation. The SPV owns the hardware. It doesn't even own the physical building. These companies have managed to raise debt secured only by the GPUs. So, if/when this all goes south, the investors can only make a claim against the GPUs. Not the physical building and certainly not Amazon itself. That's what's going on here.
This is also why SPVs are off balance sheet because they aren't really a liability to Amazon (or Google or Microsoft).
The shocking part is that investors are taking on this risk to buy GPUs that depreciate wildly and fail at an annual rate of (supposedly) ~9% for a 7-8% return.
Did you notice anything about their quant?
You notice anything different about him? Look at his face.
Is he perhaps… Chinese?
If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
Maybe the rates to do leasebacks on physical items are better, than rates for loans to build datacenters?
Could be leasing has large tax(deductible) advantages too.
Also interest rates aren't high, they're still low taken over historical trends. Thos may mean that tax deductions, written decades ago, do well still via leasing vs depreciating the hardware.
I’m not a finance bro, but my read is that Amazon wants to focus more on *using* GPUs and focus less on finding financing for buying GPUs.
They’re trying to convert GPUs into an investable commodity asset, just like crude oil is, for example.
Rough analogy: You have oil producers (Nvidia), refineries (AWS) and end-users (all software that uses AI).
If they're wanting to focus on using GPUs instead of playing finance games, then why are they spending all the time playing finance games on $8B when they've got >$100B cash on hand?
> focus less on finding financing for buying GPUs
This is them focusing more on financing on GPUs.
Not sure I understand this hypothesis. GPUs age like leftover dinner unlike crude oil...
Replace oil with wheat, then - it can be stored for a few years, but it’s still perishable. Yet it still trades on commodities markets.
Not only that - technological obsolescence
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