Comment by ElProlactin
17 days ago
> ...the arrangement incentivizes Coreweave to buy chips it doesn't need
You state this as fact but this is just cynical speculation on your part.
The less cynically speculative analysis is that Neoclouds like CoreWeave are rushing to build datacenters because their whole business is based on the premise that AI is a revolutionary technology and there will be massive durable demand for AI compute for the forseeable future.
CoreWeave generated over $2 billion in revenue in Q1 and has a nearly $100 billion contracted revenue backlog. This is not an imaginary business with no demand.
Nvidia has invested a very modest amount of money in CoreWeave equity. Dividing its revenue by the number of days in a year, Nvidia generates about $2 billion in revenue in ~3 days, and $2 billion represents 0.04% of Nvidia's market capitalization.
Are there risks here? Yes. Is the circularity potentially problematic? Yes. But is it also true that some of these arrangements are being used to make hyperbolically apocalyptic claims? Yes.
> 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...
You're absolutely correct here, which is a source of risk for Nvidia. That doesn't change the accounting as far as GAAP is concerned though, and you aren't looking at the big picture.
The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia. Nvidia will generate about $190 billion in free cash flow this year alone.
>> ...the arrangement incentivizes Coreweave to buy chips it doesn't need
>You state this as fact but this is just cynical speculation on your part.
Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101.
>The $6.3 billion backstop through 2032 is not a huge burden at all for Nvidia.
As noted earlier, the $6.3B is a floor, not a ceiling.
>Nvidia will generate about $190 billion in free cash flow this year alone.
Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"
> Whether CoreWeave actually bought chips it doesn't need is speculative; whether they are incentivized to do so is not. That is clearly the case: if you are guaranteed that any excess capacity will be bought, a rational actor will buy more than they need, as there is no risk for over-buying, but there is risk in being caught short. That isn't cynical, it's simple econ 101.
There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop. But that's not how it works.
CoreWeave buys chips from Nvidia; Nvidia has agreed to buy up to $6.3 billion in unused compute capacity through 2032. It's not buying back the chips, etc.
CoreWeave has raised way more debt (over $35 billion) to build out compute than what Nvidia has backstopped (up to $6.3 billion). In other words, CoreWeave is spending a ton to buy chips, build datacenters, buy electricity, etc. and Nvidia's backstop, while important, doesn't come close to backstopping all the investment CoreWeave is making to acquire its compute capacity.
If demand for compute dries up, CoreWeave and its lenders are going to be on the hook for way, way more than Nvidia is.
> As noted earlier, the $6.3B is a floor, not a ceiling.
You keep repeating this but it's factually incorrect. The $6.3 billion is the maximum.
https://finance.yahoo.com/news/coreweaves-6-3-billion-backst...
As I've noted, $6.3 billion works out to a few days' revenue for Nvidia.
> Maybe. But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?"
This is such a strange question.
Nvidia reported revenue of ~$215 billion for FY 2026, and ~$96 billion in free cash flow.
I don't know how to put it more simply: this is real money. And gobs of it. It's not made up.
The question you seem to really be asking is: is the demand for chips that is driving this revenue sustainable, or will it collapse, leading to a massive rapid drop in revenue? That's a completely different question but just FYI: Nvidia reported $81.6 billion in Q1 FY 2027 revenue so...
>There's a problem here: you haven't actually quantified how much CoreWeave is spending versus the value of the backstop. You seem to be suggesting that for every dollar CoreWeave spends on Nvidia chips, it's getting a dollar in backstop.
I'm suggesting nothing of the kind. Nvidia is essentially guaranteeing CoreWeaves return on the chip investment. If someone offered you that deal, regardless of what the investment was, you'd buy as much as you possibly could.
>If demand for compute dries up, CoreWeave and its lenders are going to be on the hook for way, way more than Nvidia is.
True, but irrelevant. The return on investment incentive is independent of how much other debt you have, you'd still buy every unit you could.
>>But the whole point of this discussion is trying to answer the question, "How much of Nvidia's revenue is real?" >This is such a strange question.
Yet it's the actual question being discussed in the article, and not whether the arrangements are GAAP-compliant. Saying the revenue is real, and that there are "gobs" of it, doesn't make it so. For the record, I'm sure much of it is real. But I'm equally sure that much of the demand is artificial, driven by the business practices we're talking about. I think the root of the problem is that you sincerely believe that if revenue is accounted for in a GAAP-compliant way, it must be real, organic growth driven by real demand. By that standard, you can say that Beanie Baby demand was "real". But it wasn't tied into any underlying economic utility, it was a speculative bubble. So is the AI infrastructure market, just embedded in a much more complex system of deals, as we've been discussing.
>The question you seem to really be asking is: is the demand for chips that is driving this revenue sustainable, or will it collapse, leading to a massive rapid drop in revenue?
Yes, this also is the question really being asked in the article. Among the factors to take into account when judging sustainability are whether the sales are for cash or credit, and whether those sales are being incentivized extrinsically (like, say, guaranteeing ROI).
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