Comment by vannevar
17 days ago
>CoreWeave is buying chips from Nvidia, paying Nvidia full price
I'm not sure this is the case. They are agreeing to pay them some price, it's not clear whether they are getting them for cash or credit but I strongly suspect it's on credit. That doesn't change the GAAP compliance, does it? As I said before, I think they are exploiting an accounting loophole, regardless of whether it is strictly compliant.
> I think they are exploiting an accounting loophole...
With all due respect, you haven't articulated what that accounting loophole is. I've explained why the examples/comparisons you've made aren't equivalent according to GAAP.
From everything I've read and seen disclosed, CoreWeave pays full price for its Nvidia chips. Nvidia is not financing the sale. CoreWeave has taken on large amounts of debt financing from unrelated third parties. It's highly like that the Nvidia backstop helped CoreWeave get better financing terms, but Nvidia isn't actually providing the financing.
If CoreWeave is paying cash and taking title to the asset, and Nvidia has no obligation or right to take the asset back, it is GAAP 101 that the transaction would be booked as a sale because...that's what it is.
I think the definition of an accounting loophole is something that is technically legal but nonetheless suspect because it lets you appear to get something for nothing. According to your best-case scenario, Nvidia helps CoreWeave get a loan it would otherwise not get by guaranteeing revenue for CoreWeave; this allows CoreWeave to borrow money and give it to Nvidia as revenue; bulls point to Nvidia's revenue as a reason to ignore obligations like the CoreWeave guarantee, because after all, just look at all that revenue! And of course it makes GPUs look scarce and valuable, which helps CoreWeave get the next round of debt financing, since presumably the GPUs are the collateral. And the cycle starts again.
I'm not saying these deals are crooked, but the incentives are aligned so that everyone involved is biased toward over-estimating real demand. They are systematically prone to spinning out of control.
> I think the definition of an accounting loophole is something that is technically legal but nonetheless suspect because it lets you appear to get something for nothing.
But you haven't even articulated what the loophole here is.
> According to your best-case scenario, Nvidia helps CoreWeave get a loan it would otherwise not get by guaranteeing revenue for CoreWeave; this allows CoreWeave to borrow money and give it to Nvidia as revenue; bulls point to Nvidia's revenue as a reason to ignore obligations like the CoreWeave guarantee, because after all, just look at all that revenue!
Nvidia's guarantee is almost certainly a consideration for CoreWeave lenders that could lead them to provide financing on more favorable terms than they would if there was no guarantee. However:
1. Building out capacity for CoreWeave isn't just about buying chips. It has to build datacenters, pay for electricity, etc. The amount of debt raised ($35 billion+) far exceeds what it has paid Nvidia so lenders are nowhere close to having a make-whole guarantee from Nvidia here.
2. The backstop is subject to termination if certain events occur, and these events are far more likely to be triggered if CoreWeave comes under financial distress, which is when it would need the backstop the most.
It's not that there are no risks here; it's that you haven't actually articulated in legitimate terms what they are and you haven't quantified anything.
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