Comment by JCM9

Access to infrastructure is a core part of the AI business.

If you are a startup, and you want to buy AI infrastructure, you would typically sell equity to a VC and use that money to buy infrastructure.

If the AI infrastructure vendor would offer to buy that equity, rather than a VC, that’s preferable because you may get ongoing special treatment from the vendor once they have a stake. So it’ a great deal for the startup.

For the infra vendor- you can likely get a good deal on the investment, you get some exposure to higher upside, and it may be useful to manage your cash flow.

Seems like strategic high value moves to me. It’s no wonder the market likes it

When finance folks come up with creative solutions to problems, bad things happen.

Here the “problem” is that these AI companies don’t have enough money to buy things and the traditional pool of investors that would give cash and then sit on the sidelines has dried up. Normally in that scenario companies just go bust.

To keep throwing fuel on the fire suppliers are stepping in the “invest” so AI startups can buy the supplier’s goods. History says that’s a terrible idea.

Markets correct craziness in the end, everyone will wonder how this mess ever happened, hearings will be held, and a range of new regulations will be introduced to prevent this sort of thing from happening again. Then finance folks will come up with some new way with finance to be less boring and the cycle brings anew.

> 4. Amazon records a large paper “profit” because the value of the Anthropic “investment” went up after all the stuff it’s doing with the “investment” from Amazon

This will be offset against the cost of the initial investment, though?

In the case of Nvidia and Poolside, isn't it more like: Poolside pays part of Nvidia's made up price for chips with some of Poolside's imaginary value stock?

I recently listened to a podcast episode about Enron, and one of the red flags was that they reported profits on paper, but didn't generate cash flow proportional to their profits.

Both Amazon and Nvidia probably don't need the cash flow right now, which is why they can get away with it. It'll be interesting to see what happens if their cashflow ever runs dry.

I've heard the business term as a "reciprocal agreement" a common behavior of large companies would be to award a large contract for IT services to a 3rd party and then that company would assist in getting a market foothold in their home country, like India.

I agree big time.

This distorts the markets, undermines financial disclosures, and probably stifles innovation. In your example, when Amazon invests in Anthropic, do they then get voting shares and a say where the opex go?

(Rhetorical) Why are we okay with building these card houses?

I'm not an economist or accountant so take this with a pinch of salt, but this basically transforms Amazon money into datacentres with a guaranteed customer. That's your profit right there.

There’s a whole generation now that wasn’t in the trenches for the .com bust or 2008 crisis that’s blissfully unaware of what’s about to transpire when everything that’s been going on unravels.

    Meanwhile none of the above appears to actually be making any actual profit in terms of revenues > costs.

When Anthropic pays opex for using the data centers?

Isn’t the same with any business just a bit more indirect? So at what threshold is “Fine” and when is not?

1 to 1 cycle: bad 1 to 1 to 1 cycle: good?

…?