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Sunday, October 5, 2025

Yes, The AI Bubble WILL Burst

 I've seen this movie before.

Nvidia "invests" in AI company.
AI Company buys Nvidia hardware (with said investment.)

Everyone profits, right?

Wrong.

Consider why the company would take Nvidia's deal rather than go to the market for funds.  If the market believed their idea was marketable at a reasonable cost for the money, the market would fund it.  They won't -- at least not at the scale the firm wants and at terms they find acceptable.  That ought to make your hair stand up.

It doesn't because you're not paying attention.
Or perhaps you really are stupid.

Nvidia could build out what this customer is doing if they were convinced the customer was right -- they could, for example, buy a division or stand up a subsidiary.  They didn't.  Now you ought to be feeling the electricity from holding a golf club pointed to the sky in a thunderstorm.

This is precisely the sort of thing that Lucent did in the 1990s.  People thought it was "safe" in that they'd have more preference in the capital stack and could repo the gear if they didn't get paid.  The latter is true, by the way, and if the gear has a long and stable-value life then this can work out ok as a risk-mitigating factor.

In technology fields that's never the case; all new hardware is worth very nearly zero within months to a couple of years.

So yes, when the customer blew up Lucent could repo the gear.  Now they have it back and.... its worth 10 cents on the dollar that it was sold it for originally and by the way, the customer still owes you 90 cents so that's an 80% loss and flushed down the hole you be.  Incidentally to make it worse there's suddenly a monstrous amount of said used (and nearly worthless) used gear available which of course makes the problem worse.

That is precisely how they blew up.

The same thing is true always and everywhere in all tech-related companies.  Let's say that Nvidia structured this deal to be able to take back their chips.  So what?  That's no protection at all......