Nvidia sells CoreWeave its chips, then rents back the leftovers.
It’s right there in CoreWeave’s own filing. Under a $6.3 billion deal, “NVIDIA is obligated to purchase the residual unsold capacity through April 13, 2032.” And Nvidia owns a bunch of CoreWeave stock.
What is CoreWeave? CoreWeave is a company that just buys Nvidia’s crap, shoves server farms together and prays to God that somebody leases it. If they don’t lease it, Nvidia buys up all the slack.
It’s an amazingly stupid business model that relies exclusively on debt. Last quarter, CoreWeave paid $640 million in net interest and still lost $626 million.
How Is This Any Different From The Telecom Bubble?
I’m not trying to be facetious here. For those of you that have been around since the early 2000s, how does this differ from all the telecom BS that happened 20-something years ago?
Global Crossing is out of business. MCI WorldCom was just absolute egregious fraud, and it admitted it overstated its income by at least $9 billion. These companies were literally leasing stuff to their competitors, and then the competitor would buy theirs and lease it back.
You buy my BS and I’ll buy your BS, and then we just have a big pile of BS. That’s what was going on back then. The SEC later found that without those swaps, Global Crossing would have missed Wall Street’s estimates in 2001.
So how is this any different?
Well, I’ll tell you what’s different. Nvidia is a $5 trillion-plus company. That’s probably the difference over there.
How Are They Getting Away With This?
There’s no law against it. But any rudimentary accountant can look at their books. They have to file them in the EDGAR database, and anybody can look at them and go, oh yeah, that’s wrong.
Michael Burry, the Big Short guy, is one of the people screaming about it. He’s out of his freaking mind, I don’t really care, but I agree with him on this. I’ve never taken an accounting course in my life, but I know enough.
You’re selling equipment to a firm you own part of, and then you lease back all the extra space. I don’t know how that’s legal, but I’m sure it helps CoreWeave’s earnings.
The Market Is Like A Degenerate Drunk
I don’t believe a financial crisis is coming. I believe the crisis is clearly going to be debt, and it’s not around U.S. Treasuries. It’s around tech.
Oracle has taken on too much debt, and everybody knows it.
The marketplace is like a degenerate drunk. It’s okay until it’s not. It goes little bit, little bit, little bit, and then all of a sudden nobody buys anything they’re saying anymore, and it collapses.
You’ve got to realize how fragile we really are. Everybody thinks they can rotate their way out of this. You can rotate until you can rotate no more.
If the AI trade goes sideways, Nvidia is the epicenter, and if you lose the semiconductors, that’s it for the marketplace.
Watch the SMH, the fund that tracks the big chip stocks. If it breaks through 550, all hell is going to break loose.
To your success,
Don Kaufman
