How did $NVIDIA (NVDA.US)$ manage to exceed expectations and...
How did $NVIDIA (NVDA.US)$ manage to exceed expectations and raise guidance? Jensen Huang, having experienced the dot-com era, seems to have applied some familiar revenue inflation tactics.
For those who remember the dot-com bubble, "round-trip trading" or "ad swapping" was a common practice. Here's how it typically worked:
1. Ad Purchases: Company A would buy advertising from Company B.
2. Reciprocal Ad Buys: Company B would, in turn, buy advertising from Company A.
3. Revenue Inflation: Both companies would report these transactions as revenue, even though no new money was actually entering the business ecosystem. Instead, it was just being passed back and forth.
2. Reciprocal Ad Buys: Company B would, in turn, buy advertising from Company A.
3. Revenue Inflation: Both companies would report these transactions as revenue, even though no new money was actually entering the business ecosystem. Instead, it was just being passed back and forth.
In a similar vein, what is Nvidia doing now? Here's the pattern:
1. GPU Purchases: Company A buys GPUs from Nvidia.
2. Cloud Computing Credits: Nvidia, in turn, buys "credits" for future cloud computing services from this company.
3. Revenue Reporting: Both companies report these transactions as revenue.
2. Cloud Computing Credits: Nvidia, in turn, buys "credits" for future cloud computing services from this company.
3. Revenue Reporting: Both companies report these transactions as revenue.
And what's Nvidia (and others) do now? Company A buys GPUs from Nvidia, Nvidia in turn, buy "credits" on future cloud computing services at this company, and both companies reports these transactions as revenue!
Take a look at the commitments reported last week.
Commitments have more than doubled in three months earlier this year to nearly $9 billion on cloud computing for the coming years, involving spending with companies like CoreWeave, $Amazon (AMZN.US)$ , $Microsoft (MSFT.US)$ , $Alphabet-C (GOOG.US)$ , $Oracle (ORCL.US)$ , and others.
How long can this round-trip trading continue? We will see...
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