So someone correct me but I think this is sort of an accounting trick. When Microsoft buys an Nvidia GPU for $100, it will claim that it lasts 5 years, so writes down $20 in the expense column for this year. Meanwhile Nvidia takes all the profit at time of sale, $100. So for each GPU bought, SP500 logs $80 of profit, even though no money entered or left the SP500.
(Yes of course the GPU cost something to make, but the margins on these things are very high. The point is that revenue is immediate while capital expenses are amortized. And capital expenditure has gone way up lately.)
> When Microsoft buys an Nvidia GPU for $100, it will claim that it lasts 5 years, so writes down $20 in the expense column for this year. Meanwhile Nvidia takes all the profit at time of sale, $100
Nvidia would log $64 of profit against a $100 sale [1]. (The R&D cost to develop the chip have already been booked.)
> for each GPU bought, SP500 logs $80 of profit, even though no money entered or left the SP500
In your example the S&P would log ~$40 of earnings. (About because taxes.)
Ok great, thanks for clarification. But still, on year 3 of the AI buildout, assuming the pace doesn't accelerate (it's already pretty fast!) then each GPU bought logs $0 profit since it's offset by amortization of the last two years. Compared to $40 of today, profit dropped by $40, meaning earnings contraction is around the corner...? Unless of course Microsoft manages to actually earn $20 or more from each GPU each year.
I suppose the uncertainty here would be the reason for financial market volatility.
There is a cost to produce something based on raw materials and then the possible price you can charge from the customer based on demand and supply.
The term Value is pretty vague here. Its more of a perceived value so its hard to put a number against it, there is no direct way to translate it to something more concrete.
May be bit orthogonal, one way I can think of it is to map to physical needs like clothing, housing, food and medicine?
Almost, the depreciation is 2 years, but for some reason they wrote it up like 5 for now. But anyone buy nvdia chips is already maxxed out on debt for the next 5 years and the new chips are here shortly. What happens to those 100's of billions in chips?? They get written off. We're already seeing them in cars. There is no shortage except on the scrutiny of the whole securities thing.
In theory if people are giving all of the money to Nvidia, then it's because they find it valuable (in this case companies purchasing GPUs) so even if the GPUs weren't so expensive in theory there would still be economic value derived from the transactions.
It also preferentially benefits as a function of margin. If Nvidia's prices double, it logs two thirds of that as earnings. For Kroger it turns into like a penny of extra profit for every dollar of price rises.
So someone correct me but I think this is sort of an accounting trick. When Microsoft buys an Nvidia GPU for $100, it will claim that it lasts 5 years, so writes down $20 in the expense column for this year. Meanwhile Nvidia takes all the profit at time of sale, $100. So for each GPU bought, SP500 logs $80 of profit, even though no money entered or left the SP500.
(Yes of course the GPU cost something to make, but the margins on these things are very high. The point is that revenue is immediate while capital expenses are amortized. And capital expenditure has gone way up lately.)
> When Microsoft buys an Nvidia GPU for $100, it will claim that it lasts 5 years, so writes down $20 in the expense column for this year. Meanwhile Nvidia takes all the profit at time of sale, $100
Nvidia would log $64 of profit against a $100 sale [1]. (The R&D cost to develop the chip have already been booked.)
> for each GPU bought, SP500 logs $80 of profit, even though no money entered or left the SP500
In your example the S&P would log ~$40 of earnings. (About because taxes.)
[1] https://www.macrotrends.net/stocks/charts/NVDA/nvidia/profit...
Ok great, thanks for clarification. But still, on year 3 of the AI buildout, assuming the pace doesn't accelerate (it's already pretty fast!) then each GPU bought logs $0 profit since it's offset by amortization of the last two years. Compared to $40 of today, profit dropped by $40, meaning earnings contraction is around the corner...? Unless of course Microsoft manages to actually earn $20 or more from each GPU each year.
I suppose the uncertainty here would be the reason for financial market volatility.
3 replies →
What's wrong with this though? Value was created (a physical GPU), so assets go up.
Different people/orgs get a different slice of that value.
There is a cost to produce something based on raw materials and then the possible price you can charge from the customer based on demand and supply.
The term Value is pretty vague here. Its more of a perceived value so its hard to put a number against it, there is no direct way to translate it to something more concrete.
May be bit orthogonal, one way I can think of it is to map to physical needs like clothing, housing, food and medicine?
The value of a physical GPU is yet to be determined, and is hard to reverse engineer from these figures.
Almost, the depreciation is 2 years, but for some reason they wrote it up like 5 for now. But anyone buy nvdia chips is already maxxed out on debt for the next 5 years and the new chips are here shortly. What happens to those 100's of billions in chips?? They get written off. We're already seeing them in cars. There is no shortage except on the scrutiny of the whole securities thing.
In theory if people are giving all of the money to Nvidia, then it's because they find it valuable (in this case companies purchasing GPUs) so even if the GPUs weren't so expensive in theory there would still be economic value derived from the transactions.
In theory.
[flagged]
Nvidia wasn't the thing to bet on in the run up, Samsung, SK, TSMC, 'DRAM' and construction stocks were far more lucrative.
Be sure to still dismiss any legitimate complaints or concerns as envy or fomo though.
Aka, inflation.
More like a temporary market fluctuation or maybe bubble.
inflation of a bubble.
> More like a temporary market fluctuation or maybe bubble.
A bubble that is obscuring that most of the economy is pretty weak.
It increasingly looks like everything is getting K-shaped. Not just the income of labor, but the earnings of corporations.
8 replies →
If it was inflation it be all stocks.
Inflation isn't uniform across an economy.
It also preferentially benefits as a function of margin. If Nvidia's prices double, it logs two thirds of that as earnings. For Kroger it turns into like a penny of extra profit for every dollar of price rises.