Comment by jonfw

Comment by jonfw 16 hours ago

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

JCM9 16 hours ago

You just described round tripping.

The problem is that no 3rd party seems willing to just invest cash because they believe these companies are currently a good investment. That’s what’s raising alarm bells.

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testdelacc1 16 hours ago

I’m not disagreeing, but do the AI companies want cash? If their main expenditure is infra, maybe they’re only seeking investment from AWS/Azure/GCP etc. How would an extra billion from the Saudis buy them that a billion from Amazon wouldn’t?
I’m not a fan of round tripping by any means. Just wondering if what you’re saying is true.

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- imtringued 14 hours ago
  
  Why would AI companies prefer $1 billion of Nvidia credits over $1 billion cash?
  Liquidity preference.
  This might be a bit too convoluted, but here is a way to get straight to the point. Assume there is a perfectly liquid asset and its nominal value is $1 million. Now imagine you have stocks that are worth $1 million, but the market price fluctuates over time.
  The market price of the perfectly liquid asset is always the mean, the variance is zero. The value of the stock follows a probability distribution, e.g. a Gaussian distribution. The mean is the same, but the variance means that you can't just sell the asset at any time you want.
  Even when the nominal value is the same, people prefer more liquid assets over less liquid assets. The reason is obvious. More liquid assets can buy less liquid assets at face value, meanwhile less liquid assets require you to find a willing buyer to trade, which is costly both in time and effort spent on planning the transaction. If you're impatient, you'll have to sell your asset at a discount.
  The opposite is also true. If you are an investor, you prefer handing out less liquid assets first, such as credits that can only be used to buy your own products.
  
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  jonfw 12 hours ago
  
  Investors are non fungible. Partnering w/ your supplier can provide benefits such as preferential treatment and early access to hardware that are non-monetary but enormously valuable.
  
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jonfw 12 hours ago

> The problem is that no 3rd party seems willing to just invest cash
It seems to me that these AI companies are seeing no shortage of cash investments either.

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cmiles8 16 hours ago

Deals based on creative accounting are a reliable sign a bubble is about to burst. That’s why folks are calling out these deals.

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