Comment by imtringued
Comment by imtringued 20 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.
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.