We sell GPUs to data center customers, booking sales in the P&L and accounts receivables on the balance sheet. We then turn around and commit to purchasing data center capacity from said customers, and agree to buyback "sold" inventory, making sure contract specs stay under the lease reporting threshold so we can book the sales.
Customers use these deals and obtain bank financing on depreciating inventory - since receivables are unsecured, these CDOs rank higher in priority, making it safe for the banks. Besides, we've also equity funded these customers, so the LTV seems modest.
(The customers also raise capital from third parties, so they are not technically our SPVs. The equity layer is risky, but it is no different from the risks taken by the big Wall Street banks when they bought mortgages to package into MBS.
As long as they are smart enough to offload the shares in the secondary market to Fidelity HNWIs or other rich rubes with wealth management accounts, and further offload risk by gamma squeezing Nvidia higher with call options, the risk is minimal. Besides, the guys doing these deals are the same players who orchestrated the sub-prime bubble. They know how to play the game).
We can keep doing this - beating revenue estimates each quarter and raising guidance - as long as we can keep finding these SPVs. CoreWeave, Lambda... the newest one doesn't even have a name - it is just a hexadecimal string in a Mauritius corporate registry.
At some point, we will announce a temporary hit to gross margins as we phase out Grace Hopper/ H100/ Blackwell in favor of The New, New Thing, clean up the balance sheet, and then resume playing the game.
Wall Street will understand and overlook The Big Bath, a tried and tested accounting technique used whenever a company makes "a transition plan".
By then, Nvidia will be too well established as a $10 trillion company with impeccable Wall Street cred (we'll make sure to give the investment bankers some financing business with fat fees), and these pesky Twitter accounts would have given up trying to parse our 10-Qs.
Like Jack Welch, our CEO will ride off into the sunset before the whole scheme unravels. By then, we may even get a government bailout because we're Too Big To Fail.
Good luck shorting our shares. This is a foolproof plan and we will get away with it.
Sincerely,
The League of Extraordinary Conmen
Like what you read? Get more exclusive content by subscribing to my premium newsletter!
Good Trading!
Kashyap