$NVDA Okay, so let’s talk about what Nvidia actually announced today… I’ll present the bear and the bull case. I lean more bullish for reasons that are below, but I want to highlight both sides and what this means for the broader AI industry. So, what did Jensen do today that required 6 of the most important bankers to sit with him live on national television? Well, he just secured $500B of revenue for Nvidia. The entire press release is centered around financing supply for NVIDIA compute with a “rich ecosystem of offtakers built upon NVIDIA’S CUDA platform.” The announcement literally ends by saying “this will create dedicated pools of capital at significant scale at attractive rates for NVIDIA customers.” This move is not to increase supply for the demand that Broadcom, AMD, Google TPUs, etc. are seeing. This move may help all those companies find ways for more buyers to potentially finance their products as more money enters the ecosystem, but this is explicitly a move that Jensen is making to secure $500B of demand that will flood into Nvidia. It’s a very, very smart move. How do I envision it playing out? Let’s say a neocloud needs $5B of capital to buy Nvidia GPUs. Now, Nvidia does $100B+ of FCF, they obviously could invest in that neocloud or just give that neocloud a loan to buy their chips. But, that ends up putting some strain on their balance sheet. Nvidia has an excellent balance sheet, just increased their dividend by 25X, and has committed $80B to buybacks. So, instead of Nvidia taking on the financial risk, they essentially vet the neocloud and tell Goldman Sachs that this company deserves a $5B loan. Goldman trusts Jensen, they give the neocloud the money, the neocloud then spends it on Nvidia chips, eventually the ROI from that compute goes back to paying Goldman with interest, which is the entire business of a bank, lending capital to customers with an attractive risk profile to make a return on that capital. The combined banks Nvidia is working with have 25T in assets. They are committing $500B of those assets for this project. Okay…the bull and bear cases. Bull: - Obviously, great for Nvidia has they remove all financial risk but get financial institutions to make a loan that directly will go back to Nvidia in the form of chip sales. - Should be good for memory, CPUs, optics, packaging, photonics, all parts of the semi stack. You can’t just buy Nvidia chips, you need to buy everything that goes into it and so all the semi names likely see their earnings continued to be sustained with hyperscaler capex and now a fresh 500B entering into the ecosystem. The market did not take those names up afterhours on this deal which likely means the market is still trying to figure out how bullish this is and if it’s sustainable. - Compute as an asset class is the main thing that was discussed today which is what the financial institutions want: they would like to build futures/derivatives products on compute like they do for oil, crypto, real estate mortgages, etc. and create a new financial asset class that allows liquidity and fees to emerge. This is, in my opinion, the number one reason the banks are interested: the more compute, the more financial applications to speculate on that compute while trusting that Jensen knows how to allocate this 500B to continue progressing AI globally. Bear: - It’s circular financing. If no ROI on all the companies these banks put money into, even with Jensen’s approval, the loans don’t get paid back and if Nvidia has to promise to backstop those loans in someway, it could create a major risk to their balance sheet. - Nvidia picks the wrong labs or clouds to invest in. Nvidia has been pretty good at allocating capital, but if they end up giving money to companies that will buy their chips but ultimately can’t execute (like having a ton of GPUs but not strong enough to set up datacenters quickly) then there will be questions around why those companies got the money which could lead the banks to not want to give out more loans, these are just MOUs, not confirmed agreements to begin allocating capital. - Too much leverage in the system. If we do start to see financial derivatives of compute as an asset class, then there may be too many people speculating and with that speculation comes for the potential to have bad underwriting and essentially create too many products around compute that don’t actually provide any value which eventually collapses. Ultimately, I lean on the bullish side because I believe there is an ROI coming from this compute. If there wasn’t, it’s just money switching hands back and forth with no real value. Ultimately, the market will have to see additional innovations in AI beyond just agentic inference which effectively has defined 2026 to see demand continuing to grow but also believe that the real value to GDP and productivity shows up in earnings growth (which we are seeing this year with S&P earnings) to make sense of this $500B entering into the ecosystem. If the ROI continues along with earnings growth, I would imagine the market feels like the fresh capital is going to only create more innovation and more growth which would be rewarded. What do you think, bullish or bearish on this announcement?
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