Comment by bluGill
8 days ago
That only works out if there are enough investors willing to pay for those futures. If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory. Remember too if they sell those contacts they are on the hook to deliver - if it is just investors they will accept the street value of 100k drives in 2028 but some of the people might be buyers demanding physical goods.
Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it. This isn't a common problem but it happens (most often the farmer is using their insurance payout to buy the grain - snip a very large essay on the complexities of this)
> If the new factory can make a billion drives but they only have 2 of those futures contracts sold (that is 200k drives) they don't build the factory.
But the AI companies are flush with cash and trying to buy everything, right? Why wouldn't they buy up as many futures contracts as the fab company needs to justify more fabs?
> Every year a few farmers realize they are contracted to deliver more grain than they have in their bins and so have to buy some grain from someone else (often at a loss) just to deliver it.
This is most commonly because they sold a futures contract for X bushels expecting to grow 2X but 75% of the crop failed and they only have 0.5X.
Semiconductor fab yields aren't as susceptible to how much it will rain next year and the companies generally have a pretty good idea of what their yields are for a given process node.
That is the question - will those ai companies buy the contracts
edit: actually it is worse - who else isn't buying contracts - if they build new capactity on contracts and ai collapses the existing users will take up the contracts but the old capacticy is unused.
If they build the new fabs and AI collapses then they still got all the AI companies' money because they prepaid. The current market price of chips is then going to crash, but that's what happens when AI collapses regardless. Might as well sell them five years worth of chips rather than two years worth of chips before the cash cow dries up.
Meanwhile, the fab companies want to think about what happens if AI collapses, but the AI companies don't. What do they care if they get screwed on a contract the day after they go bankrupt regardless? So offer them a contract where they get screwed if they go bankrupt, e.g. prohibit them from using any of the hardware for anything but AI for five years. Then the hardware is locked into AI stuff regardless of whether AI dries up and you can still go sell the rest of the chips that aren't to PC OEMs etc.
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