Nvidia backs AI data center startup Nscale as it hits $14.6B valuation

This is all starting to smell like financial engineering games. Traditionally nobody in their right mind would give a startup billions to build data centers. For a long list of reasons, that’s kinda nuts.

However what it does allow all these companies investing to do is fund significant capital expenditure but hide it on their balance sheet. They all know if they funded capex directly it would create a deprecation storm that would tank their future earnings. Instead they give the money to another entity to do the building and magically it’s (the equity) now just an asset on their balance sheet with no deprecation. It’s “worth” a lot as a line item there, but only because the hype driving this financial engineering keeps the shares valuable.

Meanwhile the startup isn’t public and thus the fact that it has this massive deprecation on the books is mostly out of sight and out of mind, with some random sky high valuation that’s not based in any normal sense of business reality.

That all works great… until the bubble busts of course.

How does Nvidia's backing of this startup shape competitive dynamics in the AI infrastructure space? If Nscale relies on Nvidia for both capital and GPU supply, does that create an uneven playing field for alternative GPU vendors looking to get their hardware into large multi-tenant AI data centers? Is this $14.6B valuation mostly predicated on continued preferential access to Nvidia's GPU supply, rather than any unique technical or operational advantage that Nscale itself owns?

My observation has been that the areas where data centers makes the most sense (colder climate, cheap energy, cheap real-estate, trustworthy countries) to build, are also areas where resistance against data centers has started to gain momentum. The spike in energy prices alone will make building these centers an uphill battle.

I don't get the economics behind building AI DCs in the UK instead of a middle income country near the equator where there's plentiful solar or fossil fuels.

Labor and land is expensive, energy is scarce and expensive, and colocation is not that valuable because latency is dominated by compute instead of transmission.

But there must be a good reason I am missing.

Chances of this startup pulling a Theranos are? I mean data center construction is something that couple of non startup companies do and do it well. What is the problem that they solve? The article is quite light on what they actually do.

Unless nScale is going to help the Ellisons prop up their borrowing power to consolidate a media empire they're a little late to feeding frenzy.

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Chat, why do we hear so little about banks no longer funding mega data centers? Noise or signal?