Comment by ElProlactin
18 days ago
From an accounting perspective, this absolutely isn't a consignment agreement.
The sale of the GPUs by Nvidia to CoreWeave is real. CoreWeave pays Nvidia cash and becomes the owner of the asset, so it's properly booked as a sale. If it can't sell capacity, the GPUs are not returned to Nvidia.
CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms. That doesn't change the accounting.
If Nvidia has to purchase unused capacity, it simply becomes an operating expense for Nvidia.
Nvidia's exposure is the $6.3 billion backstop obligation and the equity it holds in CoreWeave.
>CoreWeave is using debt to make the purchases but the backstop provided by Nvidia ostensibly helps it get better loan terms.
According to the article, the $6.3B is a floor, not a ceiling. And it's not clear whether CoreWeave is actually paying cash or getting the GPUs on credit. If the full amount is getting booked, it's an accounting loophole that's being exploited. If GM sells Hertz a million cars, but says "Hey, we'll buy these back if you can't rent them," can GM book all those cars as actual revenue? What if Hertz only has to pay 10% up front and the rest in 5 years?
Your GM/Hertz comparison is not applicable here. Under GAAP accounting rules, GM wouldn't be able to book those as sales because it was obligated (or likely) to buy back the asset. Under the rules, this means the transaction gets treated as an operating lease. The cars would stay on GM's balance sheet and the revenue would get recognized over the lease period.
The CoreWeave-Nvidia deal is not the same because Nvidia is not buying back the asset (the GPUs). CoreWeave has title to the chips and if they're worth nothing in 5 years, that's a problem for CoreWeave and its lenders.
What Nvidia obligated itself to was buying compute capacity, which Nvidia would be able to use for its own workloads.
In the GM/Hertz analogy, this is like GM selling Hertz the cars and saying "If you can't find renters for them, we'll rent them from you at market rates, up to $x." Under GAAP accounting rules, GM would book the car sales as revenue, the commitment to rent would be a purchase obligation, and if the rentals ever occurred, GM would incur the costs as an operating expense.
There is a question of whether the CoreWeave-Nvidia deal structure is sensible economically, and how much risk is being created. But there's no GAAP accounting question here. At all.
Good explanation. But whether it's GAAP compliant or not, the arrangement incentivizes Coreweave to buy chips it doesn't need. You're assuming that Nvidia will have some business need for the excess capacity, but there's absolutely no assurance that that is the case---indeed, Nvidia is incentivized by the AI market dynamics to show revenue growth at all costs, because there are plenty of bulls who will wave away any potential future obligations as "ordinary business costs". But are they really ordinary, or is this potential obligation to buy compute actually much greater than Nvidia's actual future needs?
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Great explanation. Maybe another metaphor, it’s like a builder/developer buying land from someone. They own the land, they get the title, it’s theirs.
The land owner saying “hey if you can’t sell all the apartments we’ll buy what’s left” doesn’t in any way negate the sale or revenue accounting as per GAAP etc.
I mean, okay sure, but modify the counterexample they suggested slightly and then it's the same thing.
If GM promised to "rent out" (instead of buy back) the cars it sold to Hertz as a backstop (if not enough customers are renting), then the comparison is apt.
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