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How OpenAI uses complex and circular deals to fuel its multibillion-dollar rise

(www.nytimes.com)
387 points reaperducer | 5 comments | 31 Oct 25 13:03 UTC | HN request time: 0.943s | source
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crazygringo ◴[31 Oct 25 14:20 UTC] No.45772276[source]▶
This is such a strange article -- there's nothing particularly unusual going on here.

The first example basically stands in for all of them -- Microsoft invests $13B in OpenAI, and OpenAI spends $13B on Azure. This is literally just OpenAI purchasing Microsoft cloud usage with OpenAI's stock rather than its cash. There is nothing unusual, illicit, or deceptive about this. This is entirely normal. You can finance your spending through debt or equity. They're financing through equity, as most startups do, and they presumably get a better deal (better rates, more guaranteed access) via Microsoft than via other random investors and then buying the cloud compute retail from Microsoft.

This isn't deceiving any investors. This is all out in the open. And it's entirely normal business practice. Nothing of this is an indicator of a bubble or anything.

Or take the deal with Oracle -- Oracle is building data centers for OpenAI, with the guarantee that OpenAI will use them. That's just... a regular business deal. What is even newsworthy about this? NYT thinks these are "circular" deals, but by this logic every deal is a "circular" deal, because both sides benefit. This is just... normal capitalism.

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Eisenstein ◴[31 Oct 25 14:32 UTC] No.45772375[source]▶
The bubble part is that nvidia is getting revenue from people investing money in their hardware in order to sell something that has not yet been shown to be profitable. If it turns out no one can make enough money selling AI generated data to justify the costs spent on the compute needed to generate it at the current rate, then what nvidia are selling becomes much less valuable, and the whole thing collapses. We haven't figured out yet whether or not that will be the case.
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1. crazygringo ◴[31 Oct 25 14:37 UTC] No.45772434[source]▶
But that has nothing to do with the arrangement of deals here.

If it's a bubble, then it will pop. If it's not a bubble, then all these investments will turn out to be great. But that's a different question.

The point is, all these deals happen all the time. They're not some kind of sign of a bubble. They happen just as much in non-bubbles. They're just capitalism working as usual.

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2. ◴[31 Oct 25 14:59 UTC] No.45772700[source]▶
3. bwfan123 ◴[31 Oct 25 14:59 UTC] No.45772705[source]▶
These deals happen all the time. The case for a bubble is the following.

When Microsoft offers cloud-credits in exchange for openai equity, what it has effectively done is to purchase its own azure revenues. ie, a company uses its own cash to purchase its own revenues. This produces an illusion of revenue growth which is not economically sustainable. This is happening for all clouds right now wherein their revenues are inflated by uneconomic ai purchases. This is also happening for the gpu chip vendors as well, wherein they are offering cash or warrants to fund their own chip sales.

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4. crazygringo ◴[31 Oct 25 15:05 UTC] No.45772789[source]▶
But nobody is falling for the "illusion of revenue growth". This is out in the open. This isn't a scam. Investors know this and are pricing accordingly. They see the revenue growth but also see the decrease in cash.

What Microsoft is actually doing is taking the large profits it would have otherwise made on its cloud compute with retail customers, losing much/all of those profits as it sells the compute more cheaply to OpenAI, and converting those lost profits into ownership of OpenAI because Microsoft's goal is to own more of OpenAI.

There is nothing "bubble" about this. Microsoft isn't some opaque startup investors don't understand. All of this is incredibly transparent.

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5. bwfan123 ◴[31 Oct 25 15:19 UTC] No.45773024{3}[source]▶
There will be increased transparency since microsoft will now have to report on the performance of its openai equity [1]. The concern is that while chatgpt is a great app, the economic benefits of the current investments are being questioned. There is starting to be skepticism of ai as the public starts to get jaded. This happens in all fads. That explains why the media is buzzing with articles like these which are becoming increasingly critical while earlier they were all aboard the ai-train.

[1] https://news.ycombinator.com/item?id=45719669