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Amazon seeks to offload $8B of Nvidia chips to investors

80 points · 92 comments · wslh

  1. vel0city · · focus · HN ↗
    I'm just trying to understand this more, can someone please give more insight?

    So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.

    This is creating a SPV company, have that SPV take out loans, have the SPV buy the hardware still installed in Amazon's datacenters, and then Amazon rents the hardware they previously bought and installed from the SPV?

    This sounds like an expensive shell game paying expensive finance bros to make some numbers on papers look a little different. What do they really gain from this? Is this just because Amazon wants ~$8B in cash today, like taking a cash-out refinancing on your home? Doesn't Amazon have over a hundred billion dollars in cash on hand? If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?

    1. michael_michael · · focus · HN ↗
      Did you notice anything about their quant?
      1. TheNoobRoxas · · focus · HN ↗
        Is he perhaps… Chinese?
      2. GlacierFox · · focus · HN ↗
        You notice anything different about him? Look at his face.
    2. b112 · · focus · HN ↗
      If you've got a pile of money in your house sitting around, why would you do a cash-out refinancing at a time of high interest rates?

      Maybe the rates to do leasebacks on physical items are better, than rates for loans to build datacenters?

      Could be leasing has large tax(deductible) advantages too.

      Also interest rates aren't high, they're still low taken over historical trends. Thos may mean that tax deductions, written decades ago, do well still via leasing vs depreciating the hardware.

    3. dragontamer · · focus · HN ↗
      > why would you do a cash-out refinancing at a time of high interest rates?

      If future interest rates are much worse much more quickly, it can be profitable.

      IE: get a bunch of cash today locked at 10%, then lend out the money next year at 20%.

      I dunno if that's the plan but there's so many possibilities in finance that it's hard to get what someone else is thinking even if their moves are public.

    4. scribu · · focus · HN ↗
      I’m not a finance bro, but my read is that Amazon wants to focus more on *using* GPUs and focus less on finding financing for buying GPUs.

      They’re trying to convert GPUs into an investable commodity asset, just like crude oil is, for example.

      Rough analogy: You have oil producers (Nvidia), refineries (AWS) and end-users (all software that uses AI).

      1. GlacierFox · · focus · HN ↗
        Not sure I understand this hypothesis. GPUs age like leftover dinner unlike crude oil...
        1. scribu · · focus · HN ↗
          Replace oil with wheat, then - it can be stored for a few years, but it’s still perishable. Yet it still trades on commodities markets.
        2. eiieke · · focus · HN ↗
          Not only that - technological obsolescence
      2. vel0city · · focus · HN ↗
        If they're wanting to focus on using GPUs instead of playing finance games, then why are they spending all the time playing finance games on $8B when they've got >$100B cash on hand?

        > focus less on finding financing for buying GPUs

        This is them focusing more on financing on GPUs.

    5. RobotToaster · · focus · HN ↗
      My guess is if AI hardware values crash then the new company can just go bankrupt.
    6. otherme123 · · focus · HN ↗
      > So Amazon bought a bunch of nVidia hardware, and has been installing it in their datacenters. These are supposedly in-service for Amazon customers, a lot of it available and in-use today.

      Bought, yes. Installed and in use? We don't know, but probably on a warehouse waiting for a place to be installed, for an energy source to be build.

      Put the GPUs in another business, sell it to investors, and watch it unfold.

      1. jsnell · · focus · HN ↗
        We do in fact know:

        > The chips in the proposed deal were bought or leased by Amazon. They are installed in more than a dozen US data centres across five states, including Nevada and Virginia, the report said.

        The "warehouses full of GPUs" thing might be the most absurd of the AI economy conspiracy theories.

        1. cmiles8 · · focus · HN ↗
          Actually no, the hyperscalers have been saying this themselves. They have bought chips they can’t power on and use because of issues getting enough power and building out data centers. How much of NVidia’s revenue is actually just selling chips that go sit on a shelf somewhere is a closely guarded secret at this point.
          1. jsnell · · focus · HN ↗
            If that were the case, the hyperscalers would be ramping down capex, not increasing it.

            The not-in-service numbers on the financials are just the normal lag, and have been stable in proportion to capex for years, to well before the start of the boom.

    7. jmyeet · · focus · HN ↗
      What they gain is financial insulation. The SPV owns the hardware. It doesn't even own the physical building. These companies have managed to raise debt secured only by the GPUs. So, if/when this all goes south, the investors can only make a claim against the GPUs. Not the physical building and certainly not Amazon itself. That's what's going on here.

      This is also why SPVs are off balance sheet because they aren't really a liability to Amazon (or Google or Microsoft).

      The shocking part is that investors are taking on this risk to buy GPUs that depreciate wildly and fail at an annual rate of (supposedly) ~9% for a 7-8% return.

    8. LudwigNagasena · · focus · HN ↗
      Looks like a sale-leaseback. Similar in spirit to an asset-backed loan.
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