alt Hacker NewsThis 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.
Replies
A few billion here and there are needed to keep the game going. Small cost of doing business, considering the alternative
>> This is all starting to smell like financial engineering games.
"Starting to"? :)
The business plan makes sense to me. They are a company that is focussed specifically on building AI data centers, which is a huge part of the economy at the moment. The big cloud players know about generic data centers, but there are likely big efficiency wins to be gained by specializing on AI. There is also the geopolitical angle: European countries (and others!) will likely trust a UK-based company more than one of the American BigCos. NVidia is a great partner and investor for them: NScale will buy billions worth of NVDA chips, and also send information and learnings about the unique needs of the market to the chipmaker.
That being said, financial engineering tricks like depreciation and tax sheltering are of course hugely important in the global economy. It's likely that NVDA has a lot of cash sitting in Europe that it doesn't want to repatriate because it would have to pay taxes on it.