"Cycular" Financing w/ GamersNexus

Better Offline

Ed Zitron and Steve Burke dissect NVIDIA's controversial 'cycular' financing model, arguing that the AI hardware boom is built on circular capital flows, debt-fueled data center purchases, and

Key takeaways

• NVIDIA faces scrutiny for cycular financing, where residual guarantees mask potential revenue drops as Treasury yields rise and half its revenue depends on five debt-reliant companies.
• Tech executives including Jensen Huang, Mark Zuckerberg, and Dario Amadei signed a non-binding Trump administration superintelligence accord while appearing visibly uncomfortable during the White House event.

Main topics

• NVIDIA cycular financing
• AI hardware bubble & GPU oversupply

Notable quotes

"It's not a circle. It's a cycle."

Conclusion

The episode serves as a critical financial and cultural audit of the AI

Transcript preview

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Because if you're not, then you've just given immunity to your killer. Speaker 1 (0:55) Listen to Fault Line Haditha on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Speaker 8 (1:04) In February of 2024, celebrated illustrator and children's book author Petra Mathers and her husband Michael mailed letters to dozens of friends and family members to let them know they had died by suicide. Dear honeys, this is goodbye. By the time you get this letter, both Petra and I will be dead. Next stop, Wonderland. Why did they do it? And what did it do to the people they left behind? Listen to Death of an Artist on the iHeartRadio app. Apple Podcasts, or wherever you get your podcasts. The Speaker 4 (1:35) new NFL season is here and you should be listening to NFL Daily as we march along to Super Bowl 61. It is in the name NFL Daily. You'll have fresh content in your feed every day, all season long. That game winning drive. Maybe it's Herbert. Maybe it's Gino. Maybe it's Mahomes. We'll have the highlights. If Fernando Mendoza or any of the rookies are balling out, we'll break down the tape. Join me, Greg Rosenthal, and an all-star cast of co-hosts as we preview and recap every game. Listen to NFL Daily. on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Speaker 1 (2:10) Hey, everybody, it's me, W. Kamau Bell. This season on my podcast, Who's With Me, I speak with Bruce Lee's daughter, Brandon Lee's sister, and my friend, Shannon Lee. Speaker 6 (2:20) Back to your initial point of stewarding my father's legacy and giving my energy to that. You're lending Speaker 1 (2:27) your life to stewarding somebody else's life. Listen to Who's With Me with W. Kamau Bell on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Speaker 1 (2:41) Call zone media. Speaker 3 (2:43) Hello and welcome to Better Offline. I'm your host, Ed Zittroth. Speaker 3 (2:58) That's right, folks. We are back at it. Subscribe to the newsletter. Download the premium. Download this episode. Download all the episodes. I need those downloads or else buy some merchandise if you must. But today we are joined by the mighty Steve Burke of Gamers Nexus to talk to us about something called Cycular Finance. Cycular? Speaker 2 (3:18) It's not a circle. It's a cycle. They said that. Speaker 3 (3:22) This is the virtuous cycle, is it, that Jensen Huang has been talking about? Why don't you tell me? It came up in your video, but I want to hear your eloquent way of putting it. Speaker 2 (3:32) They said that they know that, quote, some will refer to this as circular financing, end quote. But if you read some of their posts, they talk about how it's a virtuous, as you said, cycle. And as we know, cycles are not circles. Yeah. They're cycles. Speaker 3 (3:55) They just go in a shape that might be circular, but it's not the same thing as a circle. Speaker 2 (4:00) Right. It's really best you don't think too much about cycle and bicycle and everything on a bicycle is moving in kind of a circular motion. But it's a specifically different thing. They made that very clear. Speaker 3 (4:14) Yeah, and so this is Nvidia in their last earnings trying to justify what is obviously blatantly circular financing, where they invest in someone or they provide residual guarantees. Now, I just want to also add that they're saying they'll provide residual guarantees with data centers, but not saying what that actually means. There's lots of articles that are saying, oh, it could be this and that. Nvidia is not actually saying anything about what Speaker 2 (4:38) it Speaker 3 (4:38) means. They've said in one post. It'd be up to 25%, but not what that would actually result in. Speaker 2 (4:44) I've noticed this with a lot of it. I mean, like the superintelligence accord. Oh, Christ. Speaker 3 (4:51) What is this thing? I didn't want to jump the gun. I'm Speaker 2 (4:54) sorry. Speaker 3 (4:54) No, please. Just let's get to it. So, Speaker 2 (4:57) yeah. I mean, as you know, the Trump administration gathered. Some of the AI executives, SI, sorry, I fucked that up already. SI, they've issued an executive order to rename artificial intelligence to superintelligence for purposes of government documents. And just to get ahead of it is not binding and does not do anything. And I did notice that the company's on there. It's like anthropic. Elon Musk was on there representing, I guess, Elon Musk and whatever he does now. Jensen, signature on there, your friend Vidya. AMD was absent, but AMD did follow up and say that they were happy to support and participate. It just seemed to, it felt the same as a group project when the one kid in the group who did actually nothing. Speaker 2 (5:53) hands in the paper, you know, and says, we worked very hard on this. AMD's jumping in there to say, we're happy to be a part of this too, even though we weren't really fully included. Speaker 3 (6:05) Yeah, it's such a bizarre thing, because they also signed this self-regulatory thing as well, where they've agreed to do absolutely nothing legally binding in any way, shape, or form. Well, Speaker 2 (6:15) they did say that they would police themselves. Speaker 3 (6:17) Oh, good. And as we've seen, look at how well regulated the tech industry is as a direct result of their regulation of themselves. You Speaker 2 (6:25) know the Elmo meme where the background is on fire and he's waiting? Yes, Speaker 3 (6:29) yes. Speaker 2 (6:29) Yes, that's kind of what I'm picturing right now. Speaker 3 (6:31) What I liked about it as well is just how all of these guys who genuinely, I'm saying this without any irony or anything, genuinely these companies have more power than the United States government. They actually do if they wielded it. But all of them, the second, the absolute second Trump is like, sign the document. I'm going to all of you must kiss the ring. They fall over themselves to do so. And I mean, did you see the video of Mark Zuckerberg and him talking? Speaker 2 (7:01) Which which one? Speaker 3 (7:04) Outside of the White House, they were talking and him and Zuckerberg were yucking it up. And people were like, oh, Zuckerberg can barely hold his laughter in. When actually what happened was the moment Trump turned away, Zuckerberg looked like he had diarrhea. He looked like he'd seen the face of God. But the best part was in the background of Trump warbling on about some shit that barely made sense. Dario Amadei looked like he was being stabbed in the leg by a little man. He was like Speaker 2 (7:29) actively grimacing. I did notice that Dario, when he was asked to speak to the reporters for a moment, looked so... I don't know if it was conflicted or if he's just naturally... Look, I get it. Natural awkwardness, I get. But that didn't really look like what that was to me. He just looks strange. Speaker 3 (7:51) Yeah. He just looks like a weird freak. And I'm willing to call him that because someone from Anthropic, in front of the Pope, threatened to walk out. because the Pope would not accept that machines were conscious. Speaker 2 (8:05) Okay. This thing, Speaker 3 (8:07) how are you feeling about this? Just on a personal level, how do you feel right now looking at this every day as I am? Speaker 2 (8:14) It's bad. When NVIDIA said on their call, some will refer to this as circular financing, and they showed this sort of interest, this self-awareness for a second. Speaker 2 (8:30) I genuinely had a moment where I paused the call and I just sat there like, oh, this is going to be really bad when it goes. Speaker 3 (8:38) Yeah, that's how I've been feeling right now. Because I think we've gone past the point where anyone rational is disagreeing with the financial argument I'm making. Like, I think that that ship has sailed. But no one really wants to accept what it means. And the thing that I don't get with NVIDIA as well is when you talk to people about this and you're like, hey, so... Like half or more of their revenue comes from five companies. Out of those companies, half of them to three quarters of them require debt to buy the GPUs. Ten-year treasuries are skyrocketing, which means the cost of borrowing for everyone is going more expensive. At some point, NVIDIA's revenue has to drop. And people respond by saying, yeah, but you know, things were okay after the dot-com bubble. And it's like, okay, but what happened during that? Speaker 2 (9:24) Yeah. What happened during? After is a pretty long window. Yeah, you've got about 26 years, give or take, I guess, a year for the after the dot-com bubble. Speaker 3 (9:37) Yeah, and also, I just don't think that that really applies here because instead of dark fiber, we have GPUs that, as I've established, are not getting installed. Right. I Speaker 2 (9:47) mean, so this is, I think... For me, at this point, one of the biggest questions is just like... Speaker 2 (9:55) We've been talking about this, but it's the where are the GPUs? Right. And Speaker 8 (10:00) everyone Speaker 2 (10:00) would love to have that story. And I don't think at this point, I mean, let me know what you think on the reporting side, but I don't think someone figures out this like, oh, what warehouse or what warehouses realistically are GPUs sitting in unused unless. someone internal comes out and says it like, Hey, I'm a forklift driver, you know, at XYZ warehousing and we have 1800 GB or whatever GPU, you know, servers here. Um, cause otherwise I just, I would think all that stuff is so close to the chest that you're not, you're not going to have a leak from the executive circle and, uh, the, the companies that are, warehousing it it's also not clear to me so if microsoft buys a ton of gpus and then you have satya nadala who actually said on camera that he has more gpus than he has quote warm shells and a quote that he can plug them into right like we know they have more gpus than they're using he said that what i don't know is where do those gpus sit in that purgatory yeah Speaker 3 (11:07) are they in a data center but without power that wouldn't make sense though because if the data center didn't have power that would actually be dangerous for them Speaker 2 (11:15) Yeah, and he also did say warm shells, which to me, in your situation there, I think the only way that happens while his warm shells statement is true is if it's a data center that doesn't have power yet. And I just don't see that happening. Because then you're not even permitted, right? It's just, Speaker 3 (11:34) and again, you go to the various journalists about this and you try and make them talk about it and they go, ah, you know. It really is. This is actually what jokifies me. It's when you try and talk to your peers and they're like, yeah, you know, it's bad, I guess, but who's to say? And it's just like, okay, but we've sold possibly 200, $300 billion worth of GPUs that have gone nowhere and they're planning to buy more. This alone is a story. And they look at you like you're reading algebra to a dog. Speaker 2 (12:05) Yeah. I mean, it's like, I feel like. A product physically exists, probably. Speaker 3 (12:12) I hope so, legally speaking. Like, if it doesn't, and this is just literally balance sheet transfers, that's so bad. Speaker 2 (12:20) Right. I mean, that's how I feel, too. It's like, I think there's a certain level of awareness. And I don't, everybody's people aren't stupid, I think. And it seems unlikely that it would be a pure balance sheet type of algebra. Speaker 3 (12:37) I think that they just have a, if I had to guess, they're sitting in warehouses in Taiwan. Yeah. That Speaker 7 (12:42) they Speaker 3 (12:42) get manufactured and they just get stored somewhere. And that's, like, we're never seeing those things. And I mean, I was, I reported with the Guardians, I shut down about this, but they're, Microsoft, as of a few months ago, only had less than two gigawatts worth of AI capacity online. And most of that was H100s and H200s. Like, the vast majority of it. And it's like people don't realize how bad that is because it means that most of the Blackwell sold in 2025 have gone nowhere. It means that any of the chips sold this year have gone nowhere. Bryce Elder at the FT reported the other day that there was an analyst who said that 50 % of the chips sold this year and next year have nowhere to go. And so it's like, why are we doing this is probably the biggest question right now. And no one really wants to talk about it. Speaker 2 (13:35) Well, you know, on the consumer side, there's something really interesting. We're working on a story on this, which I can share it in advance. But we got an email from someone about, you're familiar with Micro Center, big retailers? Yeah, so for anyone who doesn't know, Microsoft is a gigantic retailer of computer parts. Gigantic, I guess, in a relative sense. For the computer parts world, they're big. And they have, and we've confirmed, started using forms for customers buying 5090s, which is NVIDIA's flagship consumer GPU, sort of. It's kind of workstation prosumer consumer. So these forms, they ask the... Staff to obtain from the customer things like a government-issued ID to prove who they are. The purchaser, the customer walking into the store buying this GPU or desktops containing it, have to certify that they're the end user or if it's for someone else, that they've obtained certification from that end user, that this device is not being exported, not being resold, and is in full compliance with the covered list. and export control laws. And this is a microcenter specific thing right now. Like you've gone to Amazon and buy a 5090 or a Newegg. They don't make you fill out a form like this. So it's microcenter specific for at least the time being. But it's interesting to me, I guess, because we're now in a situation where 5090s, which were launched as a consumer part, that's been hard to get because all the silicon is being taken for these data center parts that are probably sitting in a warehouse. Speaker 2 (15:19) part is now so difficult to obtain that you have to potentially provide government ID and certifications in order to buy it. Like, a credit card isn't enough. Right. Which Speaker 3 (15:32) is Speaker 2 (15:32) wild to me. I mean, I get it. And what is this to Speaker 3 (15:34) do? Is this to stop the sneaky Chinese from taking it? I think that's Speaker 2 (15:38) probably the sort of the build usage of it, you know? Is that really what China is doing to get these Speaker 3 (15:45) GPUs? No. Feels like slapping a band-aid. On the side of the Titanic as it sinks to the bottom of the ocean. Well, Speaker 2 (15:51) I mean, NVIDIA had one of its own people detained in Taiwan and implicated in smuggling, right? Not long ago. Well, Speaker 3 (16:00) there's more smuggling stuff that came out today that I've yet to even fucking read. Speaker 2 (16:03) Yeah, I saw the headlines. There's more Speaker 3 (16:04) shit going on. But it is really funny, though. I'm paraphrasing the Bloomberg headline about it, but it was... Speaker 3 (16:12) Nvidia's overseas sales of- oh sorry, Nvidia GPUs getting to China shows holes in due diligence. Right. Not like, hey, has Nvidia known that this is happening? Which is very obvious by now. Like he's- there was the Bloomberg story from end of last year where there was a picture of him with the CEO. of a Singaporean data center company that was sending the chips to China, like having drinks with her at a big party. Right. Like it was like a professionally taken photo. And people were like, you know, it's still an open question. Are you just Speaker 2 (16:44) referencing Bloomberg repeatedly to hurt me, Ed? Speaker 3 (16:47) No, no, no. I'm referencing it because