OpenAI and Nvidia’s fates increasingly appear tied to each other. On one side, we have a private company valued at several hundred billion dollars but running out of cash (“OPENAI: LITTLE CASH, BUT PLENTY OF PROMISES, IN AN EFFORT TO AVOID BANKRUPTCY“), while on the other, we have the most valuable company in the world fighting to keep its business house of cards standing (“WHY NVIDIA IS NOW PAYING TO SELL ITS OWN GPUs? BECAUSE REAL DEMAND IS FALLING OFF A CLIFF“). Not surprisingly, the two companies just announced a whopping $100 billion partnership (Nvidia plans to invest up to $100 billion in OpenAI as part of data center buildout) under which Nvidia commits to invest money in OpenAI under the condition that those funds will be used to buy Nvidia GPUs.
Thanks to this latest development, we can now complete the puzzle Nvidia has set up to perpetrate its biblical revenue round-tripping scheme that made it the most valuable company in the world (on paper):
- Nvidia commits $100bn of funding to OpenAI
- OpenAI will use that $100bn commitment from Nvidia as a guarantee to raise the $300bn it committed to pay to Oracle to purchase compute
- Oracle will use OpenAI’s commitment, now backed by Nvidia, to raise debt to buy Nvidia GPUs and scale up its infrastructure to serve OpenAI’s demand
- OpenAI will then pay Oracle with the money funded by Nvidia
- Oracle, at this point, will use that money to pay for the debt it funded to purchase Nvidia GPUs in the first place
For those of you who have followed me for a while, what I’ve described shouldn’t be anything new. In fact, this has been going on for so long and has been so effective that more than a year ago, I took the liberty to write a guide for all those interested in replicating what Nvidia is doing at home: “HOW TO FABRICATE REVENUES FOR DUMMIES” – Of course, I am kidding.
I’m sure many of you already noticed that the numbers in the puzzle we put together don’t add up. This is correct, and soon I will explain to you the reason why Nvidia and OpenAI rushed to put out a PR agreement that, as you can read in the last sentence of their joint press release, “NVIDIA and OpenAI look forward to finalizing the details of this new phase of strategic partnership in the coming weeks.”
So what’s exactly happening here? In a nutshell:
- OpenAI and Oracle signed a $300bn agreement without guarantees or cash advances provided by OpenAI
- Oracle goes to the banks and says, “Hey, I got a massive order from OpenAI, will you lend me money to buy GPUs?”
- Banks say, “OpenAI cannot pay you, sorry, no.”
- Then OpenAI goes to Nvidia, which agrees to fund OpenAI up to $100bn so it can pay Oracle
- Now Oracle goes back to the banks and says, “Hey, OpenAI can now pay, will you lend me money?”
Personally, I don’t think this $100bn guarantee to OpenAI from Nvidia will be enough to convince banks to lend Oracle billions of dollars to finance the build-up of an infrastructure that not only isn’t delivering any meaningful ROI for years now but is also made of rapidly depreciating assets that are, by definition, poor quality collateral for banks.
Have you realized that in all I’ve described so far, neither Oracle nor Nvidia nor OpenAI is putting down any of their cash? In fact, if Oracle cannot borrow money from banks to scale up its infrastructure and buy Nvidia GPUs, then Nvidia won’t be selling those GPUs and hence won’t have the money to guarantee the $100bn funding commitment to OpenAI, which then will use that cash to repay Oracle. Now that things are so big, it is easy to see how this scheme creates billions in revenue across three different companies, while the real cash behind those is, in reality, the same money simply moving around among them. THIS HAS LITERALLY BEEN GOING ON SINCE THE VERY BEGINNING YEARS AGO. Now it is simply too big and too blatant to ignore.
Because there is much less cash circulating among all the companies part of this great revenue fabrication scheme, where Nvidia and OpenAI stand at the very center, and a lot of this cash during the year has been used to buy back shares in order to inflate companies’ valuations to absurd nosebleed levels, now all these players are forced to raise debt to keep the revenue round-tripping scheme going. Failure to do so will trigger a very fast collapse, as happens sooner or later to every Ponzi scheme. Clearly, we are entering the last inning of a very long and twisted game that has distorted markets for many years. Will banks start to lend the hundreds of billions of dollars necessary to open a whole new chapter, or is this game about to end?
JustDario on X | JustDario on Instagram | JustDario on YouTube
SYNNAX SUMMER PROMO
Get exclusive intelligence on stocks you can’t find anywhere else – insights that could give you a serious edge. Claim your free Synnax trial month now: https://synnax.app/PROMO/JUSTDARIO
If you love what we built at Synnax (and I think you will), this advanced market intelligence will cost you less than a cup of coffee a month for the next 12 months. After the 30th of September, the annual subscription price will be 149$ – redeem your free access now and give it a try.