The distinction does make a difference and it is the former.

These circular deals are two paired transactions:

1. Nvidia buys equity in an AI lab or cloud provider with cash.

2. The counterparty agrees to buy X number of GPUs from Nvidia and in exchange Nvidia guarantees to rent some Y fraction of the compute if the counterparty cannot find customers.

This structure goes south during a pullback because all this liquidity Nvidia is essentially providing vanishes and contracts rapidly if the counterparty cannot find customers.

The other circular deal type is via private equity and the Special Purpose Vehicle (SPV).

1. The private equity firm loans money to the SPV.

2. The SPV buys GPUs from Nvidia for a data center.

3. Nvidia guarantees to the private equity firm residual value of the GPU which lowers the risk for the lender.

This deal also breaks down if the demand for GPU compute never materializes because now Nvidia is on the hook to the private equity firm (the lender) for the residual value of the GPU, which again saps Nvidia's liquidity.

Basically these deals are extremely sharp double edged swords. As long as demand for compute outpaces the compute capacity Nvidia can provide, Nvidia's revenues grow exponentially. But if demand growth slows, stops, or goes negative, Nvidia is suddenly on the hook for their counterparties' losses. Suddenly Nvidia's cash flow goes extremely negative and the company's financial situation becomes dicey.

I understand it is the former. They basically give money to be spent on compute, meaning it goes to hyperscalers who themselves buy NVIDIA GPUs. That’s how you end up with OpenAI and Anthropic together representing more than 70% of the hyperscalers AI revenue, and >40% of the overall Google cloud revenue.

Another thing NVIDIA does: when hyperscalers are looking for debt to build more datacenter capacity, NVIDIA offers to be a backstop in case the compute isn’t actually used. If we take CoreWeave for example, NVIDIA has ownership in it, and also sell them GPUs, and also goes to the banks telling them they will for sure buy the unused capacity as a way to reduce the bank risks.

So you can add that to the whole circular thing

NVIDIA explicitly says the purpose is to relieve the labs’ capital/credit constraint on acquiring compute.

On paper it’s “capital to spend on whatever helps them grow.” In practice, their growth requires enormous amounts of compute, so it’s pretty close to “Here's more money so you can acquire more compute [silent part: much of it from us].”

This is basically true for any entertainment.

Great argument ... but if you apply it to the world as a whole, this is obviously exactly what happens.

Even within one country, this should be 99% of what happens, onless it's an oil producer or something like that.

> Anthropic and OpenAI frequently “reset” customer limits to allow them to use even more resources at no additional cost.

Surely this applies to fixed-price subscriptions, not per-token spend? Large enterprises (the "very very resource intensive" large-scale users) have to pay per token.

"paradox" is an overloaded term.

Jevons paradox is a veridical paradox, which, as you said, means that it's a true statement that merely looks wrong because it is counterintuitive.

I know that some people think that the word "paradox" should be only used to refer to antinomy paradoxes which are often called "true paradoxes" (such as "this sentence is false") which lead to a contradiction without requiring a flaw in reasoning.

"Yeah, I think there's a tendency to underestimate how much demand is still gated behind cost constraints. The market for this is HUGE."

This is just hyperbolic nonsense.

There is a desire from a certain group of people of make-believe - doesn't mean the 'demand' is actually real given the economics.

> The market for this is HUGE.

Source(s)?

> how much demand is still gated behind cost constraints. The market for this is HUGE.

I think this misses the actual limits here.

The problem isn't demand it's, "how much people are willing to spend on it".

Cheap AI has to be served on cheap compute, and if inference gets cheap enough to unlock massive usage numbers, by definition it also doesn't require anywhere near as much infrastructure per unit of demand.

Take DeepSeek serving ~100T tokens/day, depending on workload and utilization, you're potentially talking about only a few thousand last-gen GPUs. With current-gen GPUs maybe closer to ~1,000, and with Rubin even fewer I will be damned if I could get my hands on one.

That's the part I think people are missing when they extrapolate token demand into enormous infrastructure or AI revenue.

Yes usage will explode. But if the cost per unit collapses, the revenue doesn't necessarily go up with it.

You can't simultaneously argue that intelligence becomes so cheap that everyone uses enormous amounts of it, while also assuming customers will somehow spend trillions of dollars a year consuming it.

There is no obvious $1T customer-facing AI revenue number at the end of this rainbow in the short/medium term.

The average person isn't going to spend anything remotely comparable to what they spend on a car every year for an AI service. Even businesses have budgets now, huge demand doesn't matter if the willingness to pay isn't there.

The only path I can see to numbers like that is AI consuming existing business domains, even then it's very thin.

Say SaaS + legal + consulting + BPO + various other service industries collectively represent something like $10-20T globally.

Even if AI eventually replaces an enormous portion of that, it's probably not doing so at the same price. Why would customers switch otherwise?

Either the AI product has to be dramatically better, which is difficult for mature workflows, or dramatically cheaper which is much more plausible.

If it replaces $10-20T of existing services at roughly 1/10th or 1/100th (more likely) the cost, then you're looking at maybe a ~$1T AI revenue opportunity after replacing an absurdly large fraction of the existing service economy.

Who are now unemployed and can't pay for shit.

And that's before competition.

I think it's crazy to assume AI companies won't compete aggressively on price. As capabilities diffuse, smaller models catch up, inference hits pareto frontier the open-source alternatives have already improved and caught up, margins on routine intelligence should compress "hard" (emphasis on "hard").

We've already seen how difficult adoption can be even when the technology looks impressive on paper. Cheap here means 100x cheaper for 10x more demand that's a net 10x loss before any software or hardware optimizations.

So yes, I completely agree that cheap intelligence can bring an enormous amount of new usage.

"I just don't think usage means revenue." (you can plaster it on a wall if you want to, "usage doesn't mean revenue", if you want to find that out I have foss software bridge to sell)

The PC analogy actually reinforces this if you really think about it. Compute became "vastly more useful" while the cost per unit of compute collapsed. Society captured enormous value, but all computer companies are literal failing giants without the AI hype. Value got caught by people who provided productionization.

Now if people expect AI to self productize itself I am happy to tell your try it. We all saw how OpenAI fell behind Anthropic because they thought that would work...

Google couldn't productize the search, instead they sold the eye balls and web-real-estate. Maybe that's the AI business model, but that's not $1T worth given you need to unglue people from other stuff.

Unless we get something approaching genuine ASI producing so much additional economic value that entirely new trillions, I don't see a path to $1-2T in direct AI revenue from customers.

The market simply can't absorb that level of spending.

Demand can be effectively infinite at the right price. But I think people are delusional on HN and SF if they think that number is in Trillions like the investments seem to suggest.

I am not saying Nvidia will fall tomorrow but someone will have to pull the breaks before this car goes to hell.

the bubble doesnt mean they are worthless only that after a pop the value of stock will drop significantly. it is out of their control if people overvalue the stock, and thats what creates the bubble which will eventually need to pop for self correction - but might trigger a massive oversale bringing the stock below actual value and causing all sorts of problems that will challenge the solvency of the company (basically challenging their liquid funds vs how much debt that they backed to their stock value). if they survive that then a bounce back is expected and buying while they were low would get you profit again. if they overleveraged themselves during the bubble bc they bought into the hype themselves, then they could face serious financial troubles and be susceptible to getting bought out.

Bubble means inflated not fake, i.e when they make less money their stock will crash and bubble will pop, which is what people buying the stock today are concerned with , is this going to hold

> The more trades you make the more the odds stack against you, and you will loose everything.

In general this is true. Participation is not rigged with eg VTI/ITOT and VXUS/IXUS and a long enough time horizon.

There is no case where one cannot participate - doing nothing means inflation will eat away at assets.

I have a very brutish 50/50 international/US split (was 30% international before 2024 when Trump promised to destroy the US economy and started to act on that...). Each quarterly equity vest I put more in, and realize capital "losses" while buying the near equivalent security when there is an opportunity to do so.

Not sure I have a choice here. My pension is already being gambled on it.

It’s a shitty advice (the one about not playing, not the one about not buying shorts). The winning move is to have diversified longs with long horizon. That’s all it takes to participate in profits from “rigged” system.

Oh no, WOPR/Joshua has gained LLM sentience.

(it is sage advice, but reminded me of nuclear war)

Right answer, but the anti-captialist reasoning is rubbish. The simple reason why you do not want to short a stock is that it can go up infinitely, and nVidia has a four year history of going up. There is also good reason to think nVidia will hit the numbers, both because AI is booming and because nVidia is conservative in its forcasts.

No capitalist conspiracy theory is needed, save the conspiracy theories for the Trumpers.

I'm long, I'm just looking for free money

It's all factored in! The unimaginably vastness of the cosmos: Past, future, at astronomical through Planck scales. You have no agency; free will is an emergent phenomenon. You are not smarter than all those quants with their Ivy league degrees and 7 figure salaries, surely; the only winning move is not to play.