It’s a shame we won’t have Anthony Bourdain to explain this move to us in the AI implosion docu-flick that comes out in 2029. It’s not stale fish, it’s fish stew! It’s a whole new thing!
This looks just like financial engineering / creative accounting; to comply with things like GAAP rules and appearing less capex heavy, while functionally having the same effect.
In the end, Amazon is still going to be the ones leasing and hence using the chips; nominally the 'owner' changes hands, and it looks like a bond (with a small equity component) in just about every way, except through some legal and accounting magic, it doesn't go on their balance sheet.
Yes, Amazon is terrified of the balance sheet implications of what’s unfolding. The only reason you’d un-vertically integrate yourself like this is if you viewed these assets as at serious risk of being a smoking hole in the ground in a few years
The WSJ had some great reporting on the SPV games recently and found $3 trillion in liabilities being kept off balance sheets by playing these sorts of things. However this time around it seems like most folks aren’t getting fooled.
> However this time around it seems like most folks aren’t getting fooled.
What do you mean? These vehicles only exist if investors buy into them. Are you saying they were "fooled" by buying these investments?
Their existence is not a secret, which is why those journalists were able to find them and add them up. These aren't hidden secrets being hidden from investors.
I see a lot of theories that this is being done to prop up stock prices by hiding debt and making the balance sheet look better, but large investors understand these financial engineering operations and factor it into their decisions to buy and sell stock.
I do think it's funny that so many people think these reporters have uncovered a scandalous secret that all of the investors missed. The way the stock prices didn't collapse after that reporting is a good clue that the investors in these companies were already aware of the situations.
To put it bluntly, there’s a lot of dumb money floating around in big funds and family offices trying to meet their mandate to “get me some of that AI in our portfolio.” With public equities limited and many funds not allowed to invest in private equities placements they moved into bonds.
Those folks initially viewed bonds as a safe bet just like folks thought mortgages were a safe bet. However if it turns out they just bought into a mess of “sub-prime” AI bro fantasies and these bonds go bad they’re in for a world of hurt just like 2008 when folks stopped paying their mortgages.
As this all starts to unwind it’s going to be fun watching these same folks run for the exits.
> except through some legal and accounting magic, it doesn't go on their balance sheet.
This part is confusing a lot of people. This isn't a secret account trick that makes debt go 'poof' without any consequences.
Companies have debts, assets, and liabilities. They can't keep the assets, move the debt to another vehicle, and do it all without incurring any liabilities.
They move the GPU assets into the SPV. Their assets on the books are decreased.
In return, they get funds they can use to pay down debts, buy more assets (more GPUs), or keep on the balance sheet.
In the process, they incur liabilities because they have to continue paying the SPV to lease the GPUs.
A lot of the shallow reporting and comments avoid discussing these tradeoffs because it feels more scandalous that way. It's not unlike when we're discussing homeowners and someone interrupts to say "Well actually, don't you know, it's the bank who owns the home!" as if that completely changes the situation.
Yup, 100% financial engineering. Converting capex into opex so their balance sheet looks a particular way in the market, and probably shedding some other liabilities in the process. Other than the amount of money, this is so common it would barely be noteworthy.
We could have Selena Gomez explain to us how the rules that were put in place to stop the degenerate big-bank side-bets last time (ESLR) were repealed right before the next time (April 2026). She's only 34, so she'll probably be around for the next few cycles of this, too.
> the deal that would move thousands of Grace Blackwell chips it is installing in US data centres into a special-purpose vehicle
> The cloud giant will then lease the advanced AI chips back from the SPV
I mean nothing is disappearing off the balance sheet. They have this lease agreement they will need to pay.
I would watch for what they do with the freed up cash though. If they use these GPUs they already own as collateral to *double down* on buying more GPUs then we got some serious downturn risk building because its leveraged.
Btw this is like 100% what Jensen was saying when he said gpu compute would be an "investable asset class".
Is all this a tax evading thing? so you move all those assets to the other company, the datacenter that is installed on a place that gives them a lot of tax advantages because "it will create thousands of work positions" gets then to be assigned to a shell company that declares the whole thing experimental and gets a lot of tax benefits that may result in "tax returns" paid from taxes from the people? LOL
I really didn't think it from the tax angle. In my mind they are doing this to move chunks of meaningful debt from their balance sheet and with it, move the risk elsewhere. These are outside investors who will own the GPUs and amazon will pay a rent to use those GPUs. It's interesting why amazon would do this, and not just amazon- meta, google and everyone else is using SVPs.
No, it’s not solely for taxes, they use those SPVs to protect their debt rating, they can raise debt via a vehicle they control without having to add it to their balance sheet. It’s exactly what meta has been doing. They want to avoid being the next oracle.
As far as I’m aware it’s all legal, but also shady and doesn't inspire confidence. You wouldn’t be trying to obfuscate your debts if you didn’t think transparency to your investors would make you look bad
It shouldn't be this way, but DDR4 is perfectly fine and will last for years. RAM generally has low failure rates; and prices are relatively better on the used market. If you want ECC, many used DDR4 ECC sticks seem like a 'relative bargain' compared to how much DDR5 ECC goes for.
As for GPU, AMD hasn't raised prices by as much; and honestly my 3060 12GB from many, many years ago plays absolutely every single game I want to play at 1440p; with nice visuals. Yeah, I can't pump everything to ultra, and maybe I need some DLSS for the most demanding games, but it's far cry from "old" or "obsolete".
In terms of actual experience or enjoyment I get from video games, I'm not missing out on anything.
It's legitimate to feel disappointed and upset at the current state of the PC market, but slightly older desktop hardware is still more than plenty fast enough.
I own both a MBP M5 Pro 48GB, and a MacBook Neo, and I use my Neo probably 2x as much as my MBP.
Chips are automatically a depreciating asset - is there a historical basis for understanding how that affects companies, and how that will affect GPU-centric companies?
There's a pretty broad consensus that useful lifespan is only a few years, certainly no more than 7 and probably less. As each new generation of chips becomes more energy efficient at some point it's no longer economically viable to continue operating the previous generation even if they're still functional.
Chip assets are a vanishingly small fraction of the valuation of these companies. If they were to depreciate instantly and need to be replaced at cost every year (assuming the fabs had capacity to produce them) it wouldn't move the needle.
This is like asking if there's a historical basis for understanding how the depreciation of garden sprinklers affects home value appreciation.
'Everything is a depreciating asset' is a fair statement - but things depreciate at exponentially different levels. A lot of things can be bought today which can be used for the same purpose just as efficiently in 10 years - and there are those which do not meet that criteria.
Our generation's very own mortgage-backed securities.
Now we just need ratings on the GPU bundles, and eventually a clever way to rebundle the lower rated bundles into something that somehow comes out AAA.
(for those unaware that's how the sub-prime mortgage crisis of 2008 happened)
> Amazon plans to offer an equity stake of up to 10% in the vehicle, the newspaper said.
10% is not a lot.
There is a lot of investment money looking for any AI investment right now. Family offices through large institutional investors have made mandates to allocate to AI investments.
Amazon is in a perfect position to scoop up some of those investment dollars. This is an easy way for them to take advantage of the market conditions.
The doomers are going to assume this is a sign of bubble bursting, but I think Amazon is being smart and weighing their options for financing. If you haven’t kept up with the markets, rates have gone up a lot. If investors are willing to hand you cash to finance your buildout in exchange for something like this, it’s worth considering.
A somewhat more accurate headline would be "Amazon seeks to leaseback a bunch of chips, many of which it's using, but some are just sitting around in a warehouse". Entirely sensible move on their part, and no, it's not a sign of a bubble bursting; it's a sign of nVidia chips becoming a tradeable, fungible commodity, which is an extremely good thing for nVidia.
I would compare it to reselling mortgage bundles before 2008 crash. It is about moving risks to those who are more comfortable with it. Not a great sign but doesn't really indicate that sky is going to fall any time soon.
Yes. This is the bit of the movie where everyone is offloading crap off their balance sheets to limit the blast radius before allowing the market to reprice anything. Once the big players have cleaned up their balance sheet they’ll let the bottom of the market drop out.
Expect earnings calls to become a lot more skeptical about the future of AI once the balance sheet cleanup completes.
Sounds like a ponzi type scheme to me. The will "sell" installed existing chips to investors and then lease them back. So when the chips are obsolete or replaced, what will happen to the investment ?
Sounds very shady to me. But also sounds like what companies do with real estate, except land does not get obsoleted.
It’s atypical to do leaseback for objects with a shelf life that’s as short as that of GPUs, but in the end, leaseback is not very different from long term renting.
It does signal that Amazon needs more cash fairly soon, but _if_ that is because they plan to invest lots of money, that need not be a problem.
If, on the other hand, it’s because they’re running out of cash, that is a problem, as leaseback solves that in the short term, but makes that problem more dire in the future.
if investors buy the chips and lease them back... and the investors are also owners of the company via shares... ??? a lot of the investors is pop amd mom retirement funds... is this a way to funnel even more people money into the friking machine?
I'm just trying to understand this more, can someone please give more insight?
So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
This is creating a SPV company, have that SPV take out loans, have the SPV buy the hardware still installed in Amazon's datacenters, and then Amazon rents the hardware they previously bought and installed from the SPV?
This sounds like an expensive shell game paying expensive finance bros to make some numbers on papers look a little different. What do they really gain from this? Is this just because Amazon wants ~$8B in cash today, like taking a cash-out refinancing on your home? Doesn't Amazon have over a hundred billion dollars in cash on hand? If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
> So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
Bought, yes. Installed and in use? We don't know, but probably on a warehouse waiting for a place to be installed, for an energy source to be build.
Put the GPUs in another business, sell it to investors, and watch it unfold.
> The chips in the proposed deal were bought or leased by Amazon. They are installed in more than a dozen US data centres across five states, including Nevada and Virginia, the report said.
The "warehouses full of GPUs" thing might be the most absurd of the AI economy conspiracy theories.
Actually no, the hyperscalers have been saying this themselves. They have bought chips they can’t power on and use because of issues getting enough power and building out data centers. How much of NVidia’s revenue is actually just selling chips that go sit on a shelf somewhere is a closely guarded secret at this point.
> why would you do a cash-out refinancing at a time of high interest rates?
If future interest rates are much worse much more quickly, it can be profitable.
IE: get a bunch of cash today locked at 10%, then lend out the money next year at 20%.
I dunno if that's the plan but there's so many possibilities in finance that it's hard to get what someone else is thinking even if their moves are public.
If they're wanting to focus on using GPUs instead of playing finance games, then why are they spending all the time playing finance games on $8B when they've got >$100B cash on hand?
What they gain is financial insulation. The SPV owns the hardware. It doesn't even own the physical building. These companies have managed to raise debt secured only by the GPUs. So, if/when this all goes south, the investors can only make a claim against the GPUs. Not the physical building and certainly not Amazon itself. That's what's going on here.
This is also why SPVs are off balance sheet because they aren't really a liability to Amazon (or Google or Microsoft).
The shocking part is that investors are taking on this risk to buy GPUs that depreciate wildly and fail at an annual rate of (supposedly) ~9% for a 7-8% return.
If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
Maybe the rates to do leasebacks on physical items are better, than rates for loans to build datacenters?
Could be leasing has large tax(deductible) advantages too.
Also interest rates aren't high, they're still low taken over historical trends. Thos may mean that tax deductions, written decades ago, do well still via leasing vs depreciating the hardware.
It’s a shame we won’t have Anthony Bourdain to explain this move to us in the AI implosion docu-flick that comes out in 2029. It’s not stale fish, it’s fish stew! It’s a whole new thing!
In the end, Amazon is still going to be the ones leasing and hence using the chips; nominally the 'owner' changes hands, and it looks like a bond (with a small equity component) in just about every way, except through some legal and accounting magic, it doesn't go on their balance sheet.
The WSJ had some great reporting on the SPV games recently and found $3 trillion in liabilities being kept off balance sheets by playing these sorts of things. However this time around it seems like most folks aren’t getting fooled.
What do you mean? These vehicles only exist if investors buy into them. Are you saying they were "fooled" by buying these investments?
Their existence is not a secret, which is why those journalists were able to find them and add them up. These aren't hidden secrets being hidden from investors.
I see a lot of theories that this is being done to prop up stock prices by hiding debt and making the balance sheet look better, but large investors understand these financial engineering operations and factor it into their decisions to buy and sell stock.
I do think it's funny that so many people think these reporters have uncovered a scandalous secret that all of the investors missed. The way the stock prices didn't collapse after that reporting is a good clue that the investors in these companies were already aware of the situations.
Those folks initially viewed bonds as a safe bet just like folks thought mortgages were a safe bet. However if it turns out they just bought into a mess of “sub-prime” AI bro fantasies and these bonds go bad they’re in for a world of hurt just like 2008 when folks stopped paying their mortgages.
As this all starts to unwind it’s going to be fun watching these same folks run for the exits.
This part is confusing a lot of people. This isn't a secret account trick that makes debt go 'poof' without any consequences.
Companies have debts, assets, and liabilities. They can't keep the assets, move the debt to another vehicle, and do it all without incurring any liabilities.
They move the GPU assets into the SPV. Their assets on the books are decreased.
In return, they get funds they can use to pay down debts, buy more assets (more GPUs), or keep on the balance sheet.
In the process, they incur liabilities because they have to continue paying the SPV to lease the GPUs.
Investors know this. Anyone who understands basic financial accounting knows this.
A lot of the shallow reporting and comments avoid discussing these tradeoffs because it feels more scandalous that way. It's not unlike when we're discussing homeowners and someone interrupts to say "Well actually, don't you know, it's the bank who owns the home!" as if that completely changes the situation.
> The cloud giant will then lease the advanced AI chips back from the SPV
I mean nothing is disappearing off the balance sheet. They have this lease agreement they will need to pay.
I would watch for what they do with the freed up cash though. If they use these GPUs they already own as collateral to *double down* on buying more GPUs then we got some serious downturn risk building because its leveraged.
Btw this is like 100% what Jensen was saying when he said gpu compute would be an "investable asset class".
When problems with AI investments become a problem the stock market will already communicate it, news will report it after the fact, not before.
link - https://www.reuters.com/legal/transactional/meta-set-clinch-...
how many dips are there in that scheme?
As far as I’m aware it’s all legal, but also shady and doesn't inspire confidence. You wouldn’t be trying to obfuscate your debts if you didn’t think transparency to your investors would make you look bad
As for GPU, AMD hasn't raised prices by as much; and honestly my 3060 12GB from many, many years ago plays absolutely every single game I want to play at 1440p; with nice visuals. Yeah, I can't pump everything to ultra, and maybe I need some DLSS for the most demanding games, but it's far cry from "old" or "obsolete".
In terms of actual experience or enjoyment I get from video games, I'm not missing out on anything.
It's legitimate to feel disappointed and upset at the current state of the PC market, but slightly older desktop hardware is still more than plenty fast enough.
I own both a MBP M5 Pro 48GB, and a MacBook Neo, and I use my Neo probably 2x as much as my MBP.
This is like asking if there's a historical basis for understanding how the depreciation of garden sprinklers affects home value appreciation.
Now we just need ratings on the GPU bundles, and eventually a clever way to rebundle the lower rated bundles into something that somehow comes out AAA.
(for those unaware that's how the sub-prime mortgage crisis of 2008 happened)
10% is not a lot.
There is a lot of investment money looking for any AI investment right now. Family offices through large institutional investors have made mandates to allocate to AI investments.
Amazon is in a perfect position to scoop up some of those investment dollars. This is an easy way for them to take advantage of the market conditions.
The doomers are going to assume this is a sign of bubble bursting, but I think Amazon is being smart and weighing their options for financing. If you haven’t kept up with the markets, rates have gone up a lot. If investors are willing to hand you cash to finance your buildout in exchange for something like this, it’s worth considering.
The fact that investors are looking for AI investments right now is not a secret.
EDIT: Did you really register a throwaway account just to post this comment?
Expect earnings calls to become a lot more skeptical about the future of AI once the balance sheet cleanup completes.
Sounds very shady to me. But also sounds like what companies do with real estate, except land does not get obsoleted.
It’s atypical to do leaseback for objects with a shelf life that’s as short as that of GPUs, but in the end, leaseback is not very different from long term renting.
It does signal that Amazon needs more cash fairly soon, but _if_ that is because they plan to invest lots of money, that need not be a problem.
If, on the other hand, it’s because they’re running out of cash, that is a problem, as leaseback solves that in the short term, but makes that problem more dire in the future.
So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.
This is creating a SPV company, have that SPV take out loans, have the SPV buy the hardware still installed in Amazon's datacenters, and then Amazon rents the hardware they previously bought and installed from the SPV?
This sounds like an expensive shell game paying expensive finance bros to make some numbers on papers look a little different. What do they really gain from this? Is this just because Amazon wants ~$8B in cash today, like taking a cash-out refinancing on your home? Doesn't Amazon have over a hundred billion dollars in cash on hand? If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?
Bought, yes. Installed and in use? We don't know, but probably on a warehouse waiting for a place to be installed, for an energy source to be build.
Put the GPUs in another business, sell it to investors, and watch it unfold.
> The chips in the proposed deal were bought or leased by Amazon. They are installed in more than a dozen US data centres across five states, including Nevada and Virginia, the report said.
The "warehouses full of GPUs" thing might be the most absurd of the AI economy conspiracy theories.
If future interest rates are much worse much more quickly, it can be profitable.
IE: get a bunch of cash today locked at 10%, then lend out the money next year at 20%.
I dunno if that's the plan but there's so many possibilities in finance that it's hard to get what someone else is thinking even if their moves are public.
They’re trying to convert GPUs into an investable commodity asset, just like crude oil is, for example.
Rough analogy: You have oil producers (Nvidia), refineries (AWS) and end-users (all software that uses AI).
> focus less on finding financing for buying GPUs
This is them focusing more on financing on GPUs.
This is also why SPVs are off balance sheet because they aren't really a liability to Amazon (or Google or Microsoft).
The shocking part is that investors are taking on this risk to buy GPUs that depreciate wildly and fail at an annual rate of (supposedly) ~9% for a 7-8% return.
Maybe the rates to do leasebacks on physical items are better, than rates for loans to build datacenters?
Could be leasing has large tax(deductible) advantages too.
Also interest rates aren't high, they're still low taken over historical trends. Thos may mean that tax deductions, written decades ago, do well still via leasing vs depreciating the hardware.