u/mkayqa

I was watching this video, and you really only need to listen to 58:52 - 1:03:40 to hear the relevant part:
https://www.youtube.com/watch?v=es4FfRU8saQ&t=3532s

>“… the increasingly complex financial structures that are being used to finance this [AI data center] buildout... and understand you'll hear things like creative financing, circular finance, roundtripping, financial innovation. This is all just Wall Street speak for subprime lending, right. It's a fancy new word salad for the same shit that has caused so many problems before. 

>And there have been three stories in particular, just over these last few days, that all feed together into all the hoops that these guys are jumping through to keep the money flowing. It's important for people to realize in a lot of cases it is their money, whether you're in favor of AI, you love AI, or you're a protester at one of these meetings, you don't want a data center in your town. It's probably your retirement that's being funneled into this stuff. 

>The first one was this morning, Amazon came out with this story that they want to get these GPUs off their balance sheets…. Amazon is going to create a Special Purpose Vehicle, otherwise known as a shell company. They're going to create a new company. That new company is going to borrow $8 billion. With that $8 billion, they're going to buy the chips from Amazon. Amazon is then going to rent their own chips right back from them in what's known as a sale-leaseback agreement. And it's very important you understand a sale-leaseback agreement is one of the oldest tricks in the private equity playbook. It's how private equity firms loot companies, bleed them dry. They played a huge role in the bankruptcy of Red Lobster, Joanne's Fabrics, Hooters, Saks 5th Avenue. A sale-leaseback agreement, they just bleed companies dry. In this case, I don't think they're bleeding Amazon dry. I think this is Amazon bleeding the debt investors dry. And they need to get these chips off their books so that they don't have to incur the depreciation expense of those chips once they plug them in. Now, the problem is the people raising the debt for that shell company, the people who are loaning them the money, they want guarantees that, if Amazon doesn't rent those chips, that they can still get their money back. The problem is we're talking about computer equipment, highly complex, top-of-the-line computer equipment, and there’s serious questions about how long this stuff holds its value. 

>And so this other story broke just a few days ago that NVIDIA is holding talks with insurance companies. And the insurance companies would… supposedly what they're doing is they would… and I quote, ‘syndicate the risk to hedge funds and alternative investors’ … and alternative investors is very important because that's your pension, that's your 401k, that's your IRA, alternative investors are grandma's annuity even. ‘Syndicate the risk.’ Why would they have to syndicate the risk? That means spread it out, socialize the losses? And then, in that same article that was in the Financial Times on the (Sep) 29th, they said the size of some of these transactions could exceed the balance sheet capacity of the individual insurers. These deals are bigger than the insurance companies that are supposed to be insuring them. And so the only way to do it is to get all the insurance companies together and syndicate the risk. 

>And then Reuters today, NVIDIA’s having a hard time convincing Wall Street to accept the useful life that they're pushing on these chips. NVIDIA’s out there saying Blackwells are going to last for 10 years, they'll be cashflow in 10 years from now. Well, most of Wall Street uses a 4-year depreciable lifespan of this equipment. Some are pushing it to five or six, but common practice is three to four years. NVIDIA’s saying, ‘no, for 10 years, we'll be able to make money on this stuff.’

>And so, you know, look at the end of the day, who owns the GPUs? Everybody's like, ‘oh, the hyper scalers are buying so much compute and GPUs’ … It's you…who owns this shit. It's being parked in your life insurance policy, your pension, your 401k; and they're using this series of circular deals, complex transactions that have a reputation for very high rates of bankruptcy and failure in order to finance this and to hide the fact that the actual risk isn't being taken by the people making billions off of this. The actual risk is being borne by the average retail investor. And that is so important for people to understand that this is going on. And that's just a story that broke in the last three or four days. That's not even some of the other more crazy things.”

Referenced articles:

"Amazon seeks to offload $8bn of Nvidia chips to investors"

• original FT article: https://www.ft.com/content/97d8d346-519e-48fb-8df8-66cf5f12ef62
• archive: https://archive.is/LA9iL
• reddit discussions: https://www.reddit.com/r/hardware/comments/1wvvu5h/amazon_seeks_to_offload_8_billion_of_nvidia_chips/ https://www.reddit.com/r/WallStreetbetsELITE/comments/1wwhh6b/amazon_is_trying_to_push_8b_in_nvidia_chips_off/

"Nvidia turns to insurers to spread the risk of AI build-out"

• original FT article: https://www.ft.com/content/d6a9f5df-08d0-4f80-ad2d-5d8a17e2cc82?syn-25a6b1a6=1
• archive: https://archive.is/uVEta
• reddit discussion: https://www.reddit.com/r/technology/comments/1wt3sm8/nvidia_turns_to_insurers_to_spread_the_risk_of_ai/

Seems like we need to see what the SFERS investment team is investing in around this, and pressure them to stay out of some of these "special investment vehicles."

Curious to hear others thoughts on this.