Circular AI financing could amplify market risk

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 53:05

   scary things here that the media, I think, is mostly missing. The first is that, so we didn't even mention it. I thought the most interesting number and what would have been the headline number from the microsoft earnings call any guesses what is it we're not even talking about it and it's a staggering number um any guesses compute growth cloud revenue growth i'll give you a hint 60 000 i don't know that's the number of buyouts that people that are off i mean this is yeah this is the fear i've never again going back to trying to sound more important I'm on, I've never been on a board where it's like, oh, our revenues are up 20% or 12% and we just offered buyouts to 60,000 people. You've never heard that before. This is the frightening part about AI is you can massively grow your top line, beats on top and bottom, and the CEO says,

2. 54:10

   oh, and try and reduce our headcount by 60,000 people? I mean, if you have any doubt that we have become shareholder nation, that the only thing that matters is earnings per share and year-to-date stock performance, 30 or 40 years ago, it would have been frontline news. Microsoft to offer buyouts to 60,000 people? Nearly a third of the workforce. Barely even mentioned. Barely even mentioned. The other really frightening thing is I believe NVIDIA has agreed to purchase or participate in the debt offering of Meta.

3. 54:47

   So these deals. There we go. And by the way, some of that money will be used to, wait for it, be used to buy NVIDIA chips. So NVIDIA is not only selling the picks and the shovels, they're financing the mine and they own the bank that's loaning the money to finance the mine to buy those shovels. I mean, it is literally the mother of all circular, circular deals here. And I used to do this in the 90s.

4. 55:15

   We all kind of knew each other in the valley and we were we would oftentimes buy each other's products or make small investments in each other's. companies, you know, to try and prop up the whole ecosystem. And when you think about how many companies, if you did an org chart or a chart depicting where NVIDIA has invested, it feels a lot, it feels eerily reminiscent to FDX in their heyday and how Sam Bankman-Fried was investing in everything crypto and propping up the entire ecosystem. It feels like NVIDIA is, in terms of financing and related party transactions and circular deals that kind of, I would have thought that that would start scaring people. 60,000? I think it has, which is why the multiple has contracted. And, you know, that's why I don't think I can buy on video, is for that reason.

5. 56:11

   Like, even though the multiples come down. Don't tell that to Josh Brown. Yeah, exactly. Those are fighting words with Josh. But that's why I can't do it because of that. I mean, this is just classic bubble behavior. And the FTX comparison, I think, is a good one because what was it that brought FTX down? It was a change in market sentiment. As soon as you leave yourself that exposed and then suddenly the music stops, that's when the problems start to arise. And so, you know, again, it would be different if you were financing all of these operations independently, but that's not what's happening. They're becoming increasingly dependent on fundraising, As you point, if Meta needs NVIDIA to go out and buy its equity or buy its debt, that tells you something about market sentiment and demand, which leaves you a lot more exposed.

6. 56:55

   So that, yeah, that's the problem.