Nvidia Frenemy Relation with Openai and Oracle

>> If you invest 20 billion and you get back 20 billion

Its about keeping Wall Street bubble momentum, not financials.

It's certainly a problem when circular investment structures are used to get around legal limits on the amount of leverage or fractional reserve, or to dodge taxes from bringing offshore funds onshore.

if you invest 20 and get 20 then you got 0% profit

The problem is that stocks are often valued and traded on revenue growth, not profit[0] So circular funding generates stock price bumps when, as you said, there's no inherent value underneath. Creates a recipe for a crash.

[0] consider pagerduty, incredibly profitable with little revenue growth. Trading at 1.5X revenue, where high revenue growth, unprofitable companies are trading at 10X revenue.

It's worse than that. One side of the "circle" is 40 billion, the other side is 300. Why not just subtract it, and say 260 billion is going one way.

The real story is that Nvidia is accepting equity in their customers as a payment for their hardware. "What, you don't have cash to buy our chips? That's OK, you can pay by giving us 10% of everything you earn in perpetuity."

This has happened before, let's call it the "selling the goose that lays golden eggs scan." You can buy our machine that converts electricity into cash, but we will only take preorders, after all it is such a good deal. Then, after bulding the machines with the said preorder money, they of course plugged the machines in themselves instead of shipping them, claiming various "delays" in production. Here I'm talking about the bitcoin mining hardware when the said hardware first appeared.

Nvidia is doing similar thing, just instead of doing it 100% themselves, they are 10% in by acquiring the equity in their customers.

Nvidia could have invested elsewhere, but they’re doubling down on AI.

Their shares have been tanking for a month, even after a very good earnings report, so perhaps the market seeks a little more diversity?

Burrys critique is that the Nvidia funding deals have them investing money in a company and getting both stock in that company and their own money back to buy the chips. They then book the chip sales in revenue but they don’t show the investment as a cost, since investments are treated separately from an accounting perspective. So it looks like they’re growing revenue organically at no cost, while that doesn’t seem logically consistent with what’s actually happening.

If you invest $100B and get back $40B in sales, you're investing $60B of money and $40B of your products. This is simple stuff. The question is whether or not it is a good investment. Probably not.

I've run into this before in other industries as well. Sports franchises are notorious where they expect any company doing work for the franchise to then spend some of that money earned back with the franchise in forms of buying advertising, suites, etc to the point that very little money if any is made by the vendor.

>should be taking that into account

There's a lot of "shoulds" that go out the window when you're basically in a hype cycle. We're high stakes rolling at this point. It's a matter of when the house goes broke.

>Michael Burry is betting against AI growth translating into real profits as a whole, not the circular funding.

One can lead to the other.

Yeah, I saw this critique show up a few months ago and now I'm seeing it everywhere, even in major financial news sites like Bloomberg.[0] It's certainly worth discussing, but people are taking it as a gotcha to prove the AI boom is fake. However, all the AI companies have to buy from Nvidia anyway. And Nvidia has tons of cash, in fact it has 4x the cash on hand now than it did in 2023, despite all the investments.[1] So yes, if they think the AI market will grow then of course they will buy into it. If all of Nvidia's deals went bad, their stock would plummet, but not because they lost a few tens of billions, rather because that would mean the AI market is going down in general. There is a great counterexample to the "AI is propped up by circular funding" argument in Google, which uses its own TPUs and builds its own AI, and integrates it into it's own end-user products, no circular deals needed. If AI is propped up by anything it is investors and companies thinking it will give them a huge return. Circular deals are a result of that: cash is going everywhere into that market, it's that simple. The AI boom may be a bubble, but not due to circular deals in particular.

[0] https://www.bloomberg.com/news/features/2025-10-07/openai-s-...

[1] https://www.cnbc.com/2025/12/04/nvidia-has-a-cash-problem-to... -- Actually "Cash and short-term investments", not sure what is included in that, but I don't think it includes these major deals.

I'm not sold on the circular funding argument either, though it certainly wouldn't surprise me if it (or some other form of corruption/collusion) turned out to be true to some extent. Personally, I firmly believe that Silicon Valley jumped-the-gun early on AI investment for fear of being left behind and over-estimating the potential of LLM-based AI (at least in the short term), and now are stuck in the awkward position of not being able to admit it without shaking investor confidence which they don't want to do as they still need significant more investment to mature the tech to a point that it starts paying significant returns with respect to the investment.

> Michael Burry is betting against AI growth translating into real profits as a whole, not the circular funding.

It's not even so much that he's betting against that translating into profits, but rather that the pace of infrastructure investments is too out of sync with the timeline of realizing those profits, and also that throwing money at the problem doesn't necessarily move that break-even ROI timetable forward in a sustainable way (beyond a certain point).

That's what popped the DotCom bubble. It was the fundamental fallacy that potential profits were directly proportional to and/or dependent on investment, and even more specifically that more investment would realize not just more profit, but the belief that more investment yielded more profit sooner which just wasn't true. So while many people associate the Pets.com flop with the dotcom bubble, it was actually over investment in and by Cisco that really precipitated the bubble bursting.

A lot of people see lots of parallels with the AI bubble in that context. If the ROI timeframe is greater than the viable lifecycle of hardware bought today, how wise is it to spend big today? Does it accelerate the timeframe if you spend more, and if so by how much, and up to what point? There's also something to be said about market momentum and strategic positioning, but that's hard to quantify, especially in the context of forecasting how impactful it will be on realizing your ROI at some indefinite point in the future.

Just because it's legal and in the open doesn't mean it's sound or not creating perverse incentives. Investors that "should be taking that into account" probably are, and hoping that they come out on top when the bubble bursts. That means pain for many people. Those are very valid reasons to point the finger and criticize.

Just invest 20 billion, get 20 billion back on its own isn't inherently a problem. The issue is it may inflate the figures and valuation for NVIDIA such that it collapses when the boom ends. If their sales rely on handing loss making companies like OpenAI money to buy their products then that may fall apart if things turn. Cisco did similar in the dotcom boom and bust. On the other hand if OpenAI doesn't collapse then the investment goes up and everyone wins. It's kind of a gamble on that sort of thing.

You are right, Michael Burry is betting against AI growth being underwhelming. But if he convinces other investors that AI is bad as a general investment, for whatever reasons (like the "circular economy" meme), then he stands to make a nice profit sooner. What's not to like?

to me bigger problem emerges if you assume all those companies in the 'circular financing infographic' as one conglomerate. then essentially all you are left with is real demand for AI & I just dont really see much of it besides Hype and FOMO. that falls away the moment CFOs get 'permission' to ignore the AI growth story. besides that I only see coding bot and openAI's consumer subscription business. I dont see that becoming $1T business anytime soon. so what gives? I think Burry is right but I am not sure of timing because they just need one funder to extend and pretend for a few more quarters & DJT can do it under guise of datacenter jobs etc.

Circular thing is bad too but from a different angle, Imagine if the whole TPU vs GPU thing erodes Nvidia's moat and its profit margins compress. if that happens how long it can keep feeding the same unproductive 'pets.AI' type startups? one break in the narrative and tragedy of commons strikes. will it happen soon? anybody's guess but given Trump is at helm and there is going to be new Fed chief, I doubt it would be anywhere near soon. Definitely not before mid-terms are locked in.

No. Your revenue increased by 20bn and your profit increased by (for arguments sake) 5bn. You also have 20bn of investments that you then need to value.

Is that bad? Depends. Did the purchase of chips make sense. Would they have done that if someone else say an independent entity invested?

OK, but what will they do next quarter? Loan out another 20 billion and get it back? And the quarter after that? Eventually you run out of people will to take loans from you to buy your chips and what do you think happens then?

It's about the timeline over which each "investment" materializes, the contingencies that threaten whether and how much it does, and the timeline for the material obligations that are taken up as part of it.

Like a stage magician building an illusion for their audience, the game right now is to make top-line announcement so big and stunning that they distract the audience while you push increasingly byzantine and vulnerable details out of view. Here and there, you acknowledge the audience skepticism and wonder by waving your hand through where the wires might be, admitting to some "risk" but reassuring them that the deal is a sure thing and that all such risk has been accounted for and priced in.

Meanwhile, nobody gets to come up stage and prod their fingers over all the fine details of your trick until way after the show is done (and only as much as regulation obliges such transparency). If they want in on the biggest economic revolution since the steam engine, they have to believe what you're showing them on the stage today and man is that show you're putting on a stunner.

At this scale? Why don't you give some examples.

Pull our POV back far enough, and isn't "circular funding" just "The economy?"

Money circulates; it's what it does. The real question is to what extent circulation among a small group of firms is either collusion in disguise (i.e. decisionmaking by only one actual entity falsely measured as multiple independent entities) or a fragile ecosystem masquerading as a healthy one (i.e. an "island economy" where things look great in the current status quo, but the moment the fish go away the entire cycle instantly collapses).

I agree it's poorly written, but I'm _much_ more interested in whether it is correct, or incorrect. Do you believe it is incorrect?

SRAM scaling also hit a wall a while ago, so you can't really count on new processes allowing for significantly higher density in the future. That's more of a longer-term issue with the SRAM gambit that'll come into play after the DRAM shortage is over though - logic and DRAM will keep improving while SRAM probably stays more or less where it is now.

Is Groq different from Grok?

Why use a throwaway account if posting an honest critique?

[delayed]

> Even if the conclusion is broadly correct, that doesn't mean the reasoning used to get there is consistent.

This is the conclusion of a reply that focused entirely on critiquing OP's style/AI use instead of their reasoning? Ironic.

It does amuse me when you have great, clean writing in some parts of a post, but then you have a sentence like

> As we head into 2026, when looking at Nvidia, openai and Oracle dynamics, it looks like they are squeezing each other balls.

Yeah I don't think there's a snowball's chance in heck that an LLM wrote that one, lol. My best guess is that the author combed over some of their prose with an LLM, but not all.

In other post: https://philippeoger.com/pages/why-googles-tpu-could-beat-nv... in the paragraph: "What This Means for the Future NVIDIA is not standing still; its Q3 Fiscal 2026 earnings were a record \$57.0 billion in revenue, with Data Center revenue hitting \$51.2 billion. But the growing adoption of TPUs introduces a long-term risk to NVIDIA's core business model." they write about 2026 as if it already was. Could be a human typo or AI mistake.

Is it possible the writer's first language is not English? ... and they used LLMs to help them with a few paragraphs?

I think you're looking too deeply at this. It's generally well written. I feel like you could take almost any sentence and say "look like AI" if you squint hard enough.

Regardless of it is was fully or partially written by AI, do you agree with the main points? Do you disagree?

I am laughing really hard. That first sentence of "Final Thoughts" is amazing.

the inconsistent capitalization, the odd punctuation, and the grammar mistakes. Love it.

I want this article to stay on the front page because it is hilarious.

I pasted two paragraphs in GPTZero and got the following results: 19% AI, 65% mix of human and AI and remaining 16% human. As I wasn't logged in, I did not get other details.

Deep dive this is not, and it certainly wasn't worthy of being upvoted on hn..

I'm also unsure why they took a sudden tangent from the topic at hand to suggesting Oracle should buy groq. It's like two separate half-baked blog posts merged into one with no real segue or conclusion as to why that sudden hard-left was relevant or meaningful.

HN is full of know-little blogspam, although rarely does it get top top like this one did.

I don't believe your comment is just a direct dump out of an LLM's output, mainly because of the minor typo of "acquihires", but as much as I'd love to ignore superficial things and focus on the substance of a post, the LLM smells in this comment are genuinely too hard to ignore. And I don't just mean because there's em-dashes, I do that too. Specifically these patterns stink very strong of LLM fluff:

> leadership credibility isn’t a soft factor—it’s a structural risk.

> The Timeline/The Big Players/The "Pre-Product" Unicorns/The Downstream Impact

If you really just write like this entirely naturally then I feel bad, but unfortunately I think this writing style is just tainted.

    (a) must charge their customers that amount plus massive overhead and profit, and 
    (b) have inflated valuations themselves precisely because they are in the game.

lemme see your PUTS please :)

Very helpful, an AI comment analyzing an analysis of AI

I'm sorry, but did you ask ChatGPT or another LLM to critique this article?

Given that not all information is public in this scenario, there is no choice but to construct theories that are plausible regardless of the gaps in evidence; such is the basic nature of investing and economics both. Is your objection that available evidence was excluded that you consider to be materially relevant, or that theories were constructed when we don’t have the complete story, or..?

This is definitely an AI response that wasn't even reviewed. The word "moat" doesn't even exist in the article but you have put it in quotes.

^ For what it's worth, just a note that the above paragraphs are AI generated, as can be easily inferred by the author's replies below.

Parties in an economy don't normally buy something that they sell at the same time. It's hazier than that here, but still looks like Nvidia is buying GPUs from itself via OpenAI and Oracle.

Btw there are examples involving sanctioned economies. Most US saffron comes from Spain, all of whose saffron comes from Iran. Azerbaijan exports way more gas than they produce, cause they also buy from Russia.

Only when using non aligned intwrests, like government funding roads.

When interests directly align and parties are largely owned by the same people, its wash trading.

The point of wash trading is to make activity increase the value of an asset via a netzero activity. Since nothing is generated from the activity its circular, eg, nothing physical changes hands.

Crypto trading is the golden child of wash trading as the primary mode of increasing the value of an asset.

Its unsurprising then that the company that got rich on crypto wash trading is doing its own attempts to drive artificial demand.

Forget about DRAM vs. SRAM or whatever: How does a cheaper source of non-Nvidia GPUs help Oracle? They’re not training models or even directly in the inference business. Their pitch is cloud infra for AI, and today that means CUDA & Nvidia or you’re severely limiting your addressable market.

You're absolutely right!

Wow, calflegal. That's not just good insight, it's smart thinking.

I think you're correct — there's a lot of LLM generated content here!

> Groq may be undervalued but not for supply chain reasons.

Groq isn’t listed is it? Hard to know what its valuation might look like.

Are partially processed wafers on Nvidia's balance sheet or TSMC's? Or are you saying Nvidia is holding sawn die in inventory? Confused as to what state the product might be in for it to make sense to hold for 4 months when supposedly you can sell everything you make.

> Net Income and Operating Cash Flow are not the same thing

This is the second article that gained a lot of traction on HN in the last few months with similar fundamental errors. The previous one was similarly written by someone with a dev background where they didn't understand the difference between gross margins, operating profit, and net income–concepts which were the basis for their analysis.

I wonder with this author or the previous, if they're just a little too confident in their abilities. Accounting and Finance are very deep and highly technical fields. Particularly for publicly traded companies where the businesses tend to be very complex and sophisticated and the consequences for making mistakes or committing fraud are severe. I'm not suggesting that non-finance people shouldn't try to analyze this stuff, but some humility might be in order.

It reminds me of a data scientist I worked with who was doing some modeling on companies' revenues. He believed he'd uncovered some secret, conspiratorial truth about Samsung having trillions in revenues, thereby making it the largest and most powerful entity on Earth. We had to gently inform him that he was looking at the revenues denominated in Korean Won and they needed to be converted to USD.