The NVIDIA Bank: Jensen's $500B Wall Street Deal and GPUs as an Asset Class

We unpack the massive $500 billion financing commitment tied to NVIDIA GPUs. Does this represent a new financing structure or a circular trade?

We also cover the risks around AI demand, GPU pricing, and whether this approach could reshape how AI infrastructure is funded.

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TIMESTAMPS

0:00 AI Bubble or New Asset Class
2:09 Jensen Orchestrates the $500B Deal
3:17 How the GPU Financing Works
9:38 Where the Money Comes From
11:32 GPUs vs Mortgage-Backed Securities
14:04 Why Supply Still Looks Tight
19:28 Agents Drive Near-Term Demand
20:36 The Bear Case Risks
22:50 Tracking the Real Warning Signs
25:01 Why the Bull Case Still Holds
28:52 NVIDIA and the GPU Future

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RESOURCES

Josh: https://x.com/JoshKale

Ejaaz: https://x.com/cryptopunk7213

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Not financial or tax advice. See our investment disclosures here:
https://www.bankless.com/disclosures⁠

Josh works with Anthropic as a contractor. All views expressed are his own and do not represent Anthropic, its leadership, or its affiliates. Nothing in this episode is investment advice.

Creators and Guests

Host

Ejaaz Ahamadeen

Host

Josh Kale

What is Limitless: An AI Podcast?

Exploring the frontiers of Technology and AI

Ejaaz:
Earlier this week, the most powerful people in finance stood around a table

Ejaaz:
next to Jensen Huang and announced they'd raised $500 billion to buy NVIDIA GPUs.

Ejaaz:
Now, if you're listening to this and you're thinking this is just an AI bubble

Ejaaz:
circular economy type thing, you might not actually be wrong.

Ejaaz:
Larry Fink, the head of BlackRock, actually likened this deal to mortgage-backed

Ejaaz:
debt securities of the early 2000s.

Ejaaz:
And if that sounds familiar, to which he created. Yes, to which he created.

Ejaaz:
And if you're likening that to a kind of like a PTSD flashback,

Ejaaz:
that's because that's exactly what happened in the 2008 financial crisis itself.

Ejaaz:
But if you look at the news in general, if you look at the way that this deal

Ejaaz:
is structured, it might actually hint at something completely different. In fact, the opposite.

Ejaaz:
GPU prices for renting has gone sky high. It's up 40% on the year.

Ejaaz:
And there's not enough GPUs to back a lot of the deals that Microsoft,

Ejaaz:
Google, Anthropic and OpenAI are signing with NVIDIA. So the question that we're

Ejaaz:
going to unpack on the show is, is this very much a bubble back deal?

Ejaaz:
Or is this something completely different that we're missing?

Josh:
A new paradigm of investing, a new paradigm of financial manufacturing and construction.

Josh:
This is a new investable asset class. Yeah, this is an entirely new thing.

Josh:
GPUs. Who would have thought?

Josh:
Michael Burry, the guy who's responsible for the big short, he was like,

Josh:
no, the price of these things are going down only. It turns out he could not have been more wrong.

Josh:
And now Jensen has assembled Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR.

Ejaaz:
It's the Avengers of finance. It's the Avengers of finance.

Josh:
It's like Apollo alone has a trillion dollars.

Josh:
Of assets managed. Blackstone has over 1.3 trillion.

Josh:
Brookfield is over a trillion. And combined, that's 3.4 trillion.

Josh:
BlackRock is bigger than all three of those combined.

Josh:
And they're all doing this together. And together, they've signed this thing

Josh:
called a memorandum of understanding. Now, I had to actually look up what this

Josh:
means because I had no idea.

Josh:
A memorandum of understanding, or an MOU, is a formal, usually non-binding document

Josh:
signed by two or more groups.

Josh:
It shows that the groups share a common goal and plan to work together.

Josh:
So this is not a contractual obligation. We have to start with that.

Josh:
This is not a guarantee that $500 billion is going to flow into this new economy.

Josh:
But it is an intention that all of these people are going to be aligned to work

Josh:
together towards funding this next build out of AI. And what I found most interesting

Josh:
is that this was actually orchestrated entirely by Jensen.

Josh:
Jensen reached out to all of these banks himself personally.

Josh:
And he said, hey, I'd like to work together on this thing. And not a single

Josh:
bank that he reached out to said no.

Josh:
So here we are now with a moment on CNBC in which they're all sitting around

Josh:
a table talking about how they are committing $500 billion to this new asset class.

Josh:
And this is unbelievable. This feels like a, for better or worse,

Josh:
a brand new paradigm for the AI era in which now the collective force of the

Josh:
United States banking system is like starting to get behind this.

Josh:
And I should say this is not for AI as a whole. This is purely for NVIDIA as a company.

Ejaaz:
Yeah, and I want to take a moment to actually explain what's happening here,

Ejaaz:
because I think there's a lot of confusion.

Ejaaz:
There's a lot of headlines that people are getting worried over.

Ejaaz:
NVIDIA stock tanks 4% on the news, but I think that's a little too early to

Ejaaz:
judge. So firstly, what does this structure sort of look like?

Ejaaz:
Well, it's what you're seeing on the screen right now, which is essentially.

Ejaaz:
There's a problem in AI right now, which is all these hyperscalers,

Ejaaz:
all these AI labs, Anthropic, OpenAI, Google, Meta, you name it,

Ejaaz:
have spent a lot of money to buy GPUs.

Ejaaz:
The reason why they're doing this is to train and inference brand new AI models,

Ejaaz:
which they have a lot of paying customers for.

Ejaaz:
But the issue they're facing is the money they've invested, which is now to

Ejaaz:
the tune of $2.6 trillion converted over the next couple of years,

Ejaaz:
I believe, is not enough for them.

Ejaaz:
So much so that they're going into negative cash flow. So what happens when

Ejaaz:
you've spent all the money that you have in your company, in your balance sheet?

Ejaaz:
You need to go to Wall Street. That's exactly what NVIDIA, specifically Jensen, has brokered.

Ejaaz:
He's gone to Wall Street and he said, listen, we need more money to build more

Ejaaz:
GPUs to sell to these different customers so that they can produce their products

Ejaaz:
and services, their new models.

Ejaaz:
And Wall Street has gone back and said, I have an issue with this,

Ejaaz:
Jensen, which is GPUs aren't a versatile asset. like they can only be used for

Ejaaz:
one thing specifically, which is either training a model or inferencing a model,

Ejaaz:
and it's only customer-specific.

Ejaaz:
And Jensen responded to them and said, that's not true at all.

Ejaaz:
GPUs, specifically NVIDIA GPUs, are the most versatile asset out there.

Ejaaz:
You can use it for anything. You can use it for training, you can use it for

Ejaaz:
inference, and you can use it for any model, whether it's Claude,

Ejaaz:
whether it's GPT, whether it's Gemini, whatever. You can use it for it,

Ejaaz:
which means that it's a versatile customer base.

Ejaaz:
Earns a lot of money. And then Wall Street shot back at him and said,

Ejaaz:
well, hang on a second, these GPUs die after a couple of years.

Ejaaz:
And Jensen goes, that's not actually true. In fact, we have 10-year-old GPUs

Ejaaz:
that are being re-signed for another 10 years right now today at a higher price

Ejaaz:
than they sold earlier on.

Ejaaz:
So basically what he's pitched them is this is a new asset class and it can earn a ton of money.

Ejaaz:
And so Wall Street looked at this, some of the biggest financial powerhouses

Ejaaz:
in the world and thought, you know what?

Ejaaz:
He might be right. This is an asset class that can be likened to property or

Ejaaz:
railroads back in the day.

Ejaaz:
And that's why Larry Fink is comparing it to the 2008 mortgage-backed securities.

Ejaaz:
Now, if you're wondering, okay, well, this is like a financial crisis type thing,

Ejaaz:
you might be right, except there was like a few different things going on there,

Ejaaz:
which we'll unpack later in the episode.

Josh:
Yeah, it feels very much like AI compute is equivalent to revenue.

Josh:
And these are very now like durable, appreciating assets that can yield value over time.

Josh:
So when you think of like a bond, per se, the value of a bond is implied to

Josh:
go down over time, the underlying asset like the US dollar due to inflation,

Josh:
but the yield it will come up with is going to outpace that and then some hopefully

Josh:
the construction of a GPU is that not only do you get a yield in terms of the

Josh:
value creation off the back of token generation.

Josh:
But you now also have an asset that is likely going to appreciate.

Josh:
And even in the face that it doesn't, Jensen is giving plunge protection.

Josh:
So 25%. Yes. Depreciation insurance of up to 25% to help the banks get these

Josh:
marginal deals over time. So banks initially were concerned.

Josh:
They don't want to fund this because they don't want

Josh:
nvidia to come out with the new gpu that's a thousand times better than this

Josh:
one and it's going to knock all the margin out from underneath them

Josh:
who knows the roadmap about nvidia gpus better than anyone else it's jensen

Josh:
the guy who's building it so baked into this contract is the idea that

Josh:
jensen will ensure you he will make sure that hey your gpus are not going to

Josh:
fall drastically over time everything is going to be smooth and predictable

Josh:
and we'll work together to fund these companies that don't have

Josh:
the ability to do so so this comes in the form of like this long-term

Josh:
Debt and asset backed structures.

Josh:
And you think of it like if you're not a hyperscaler, if you're not Google who

Josh:
has a couple hundred billion dollars to spend off your balance sheet this year,

Josh:
but you still want to compete in the world of AI, you still need GPUs, these are who you go to.

Josh:
And they will offer you GPUs in exchange for interest on these GPUs.

Josh:
And in the worst case that it doesn't work out, they can just claw back the GPUs.

Josh:
NVIDIA can claw back those GPUs and turn it into their own NeoCloud,

Josh:
give it to another neocloud but the idea is that these assets are valuable they're increasing in money

Josh:
they are transferable in an easy way that you can just take the gpu and plug

Josh:
it in somewhere else or give the actual data center control over to someone else

Josh:
and it's a really lucrative kind of bizarre thing it's like okay if you're a

Josh:
bank 500 billion dollars

Josh:
you have insurance you are now able to allocate this

Josh:
incredibly valuable capital resource to anybody who you want and collect a pretty

Josh:
high rate of return on top of that

Josh:
and nvidia wants in on this too so initially it wasn't for nvidia nvidia now

Josh:
is given the option to backstop up to 25 of each opportunity so that is 125

Josh:
billion dollars at the ceiling

Josh:
and basically now nvidia and co the avengers get to roam around choose who they

Josh:
would like to give these gpus to and wrap it up in a really interesting financial

Josh:
product that they can go off and, I guess, monetize.

Ejaaz:
And I want to stress that this is only for NVIDIA GPUs specifically.

Ejaaz:
Jensen brokered this deal for his company only.

Ejaaz:
And he has a reason to do that because GPUs for the longest time has been very

Ejaaz:
broad based. If you look at some of the GPUs that Google makes or that Meta

Ejaaz:
is making or that even OpenAIR and Anthropic are reportedly working on their own specialized chips.

Ejaaz:
These are exactly what I just said. They're specialized. They can't be used

Ejaaz:
for many other models. It's only used specifically for their things.

Ejaaz:
So it's a much more niche case to create a type of loan or credit-backed security for.

Ejaaz:
Jensen has the opposite issue, which is like, it's too broad.

Ejaaz:
But that makes it an amazing financial asset. So in effect, NVIDIA is sort of becoming a bank.

Ejaaz:
And I wouldn't be surprised if Jensen starts to make a lot of money from this.

Ejaaz:
Over the last couple of weeks, something that he's also started doing is backstopping

Ejaaz:
specific Frontier AI labs and saying, hey, don't worry, I got you.

Ejaaz:
I'll front up the money that you need to purchase my GPUs.

Ejaaz:
And in return, whatever money you make on the products that you're building,

Ejaaz:
you can give me a revenue split from that.

Ejaaz:
I think he signed like a reportedly 10% revenue split from Safe Super Intelligence,

Ejaaz:
which is Ilya Sutskiver's new lab for their breakthrough that they're launching pretty soon.

Ejaaz:
And I think he's gonna do the same for a lot of neoclouts like CoreWeave,

Ejaaz:
Nebius and such like that, that are reporting crazy earnings.

Ejaaz:
I think this morning, CoreWeave reported 464% increase in revenue year upon

Ejaaz:
year, which is just a precursor to like the insane demand that they're seeing right there.

Ejaaz:
But then a question that comes into mind is, where on earth is this money coming from?

Ejaaz:
And on the screen here, it's like the main claimants are pension funds, right?

Ejaaz:
So pension funds who have amassed a large amount of wealth and typically don't

Ejaaz:
invest in high volatile type assets.

Ejaaz:
They kind of stick to real estate, very low interest types of things,

Ejaaz:
are the ones that are going to be backing a lot of this new GPU asset class.

Ejaaz:
And you have the biggest, most

Ejaaz:
powerful financial people in the world that are kind of pushing this on.

Ejaaz:
And so I'm thinking, is this reckless behavior?

Ejaaz:
Well, if you take the word of Goldman Sachs CEO David Solomon,

Ejaaz:
he goes, $500 billion sounds like a lot, but there are $9 trillion in US money

Ejaaz:
market funds and more than $100 trillion in US equities.

Ejaaz:
He has a deep belief in this opportunity and Goldman brings its extraordinary

Ejaaz:
distribution network. Larry Fink, CEO of BlackRock, also says,

Ejaaz:
he said it's a very attractive opportunity with long-dated, long-term returns.

Ejaaz:
They will be talking to pension funds. So it seems like the two most powerful

Ejaaz:
financial connoisseurs in the world are convinced that this new asset class

Ejaaz:
is a very real thing, which means that they've probably looked at the balance sheets.

Ejaaz:
They've probably looked at the revenue demand that a lot of these frontier labs

Ejaaz:
that are meant to be purchasing these things are going to do.

Ejaaz:
And they're looking at it and they're saying, this is an obvious no-brainer.

Ejaaz:
Now, if you're listening to me and you're thinking, dude, this happened with

Ejaaz:
railroads and it didn't work out.

Ejaaz:
This happened with the housing environment, mortgage-backed debt securities

Ejaaz:
in 2008, that didn't work out.

Ejaaz:
I have to say, it's a very different story on our end.

Josh:
Well, that's what I was going to ask you. I was going to say like,

Josh:
hey, obviously they're going to come out and say these things.

Josh:
I mean, we've seen them manipulate markets for a long time. We just saw what

Josh:
Citadel did to Leopold. It's like everyone is very clearly out in their own

Josh:
best interest. So if we look at this deal, okay, they're not going to say it's

Josh:
anything less than exceptional.

Josh:
So how do we kind of vet this? How do we fit this into a specific piece of context

Josh:
that I guess we could reference?

Josh:
And there's an interesting example of like aircraft finance versus mortgage

Josh:
finance, because this is something that has happened in the past where

Josh:
when you have an expensive standardized asset that's transferable between operators

Josh:
and has a lot of demand for these secondary markets, it creates this interesting marketplace that

Josh:
I think is much more comparable to aircrafts than mortgages.

Josh:
And I'll explain. So like a Boeing 747 or 737 or whatever, that's been built

Josh:
like 20 years ago. And trust me, you've flown on these. The airlines kind of

Josh:
suck. You're flying in some old planes.

Josh:
That is just as valuable today

Josh:
As it was 20 years ago, because they're able to derive so much value from it.

Josh:
It does the same exact job.

Josh:
The same plane that was built today is doing the same job that was built 20

Josh:
years ago. And sure, perhaps you would prefer to fly on the newer plane.

Josh:
But the reality is, is that tickets are sold out on the 2005 plane and the 2025 plane.

Josh:
And when you think of GPUs, they exhibit a lot of the same traits and characteristics

Josh:
as an airplane, where it's expensive, standardized, it's transferable.

Josh:
It has a lot of liquidity in secondary markets.

Josh:
And I think this is an interesting way of looking at it relative to mortgage

Josh:
finances, which is where we got in trouble. And this isn't the first time this has happened before.

Josh:
There is something that has been done similar to this with Broadcom,

Josh:
where like that Google Anthropic structure actually runs through this thing

Josh:
called an SPV, a special purpose vehicle that buys TPUs and leases them with

Josh:
Broadcom providing the residual value guarantees,

Josh:
and then Apollo and Blackstone supplying the private credit to fund all of this.

Josh:
So people have experimented with these structures, before. It has worked.

Josh:
We haven't seen it at this scale. I mean, the alarm bells are partially ringing.

Josh:
I'm like, just out of instinct, like out of an e-joke reaction,

Josh:
like, oh, wow, this is a lot of money. This is a lot of powerful people who

Josh:
can very much control and sway the way the market moves.

Josh:
So far, it seems like a pretty reasonable thing. It's like, hey, we need GPUs.

Josh:
GPUs are transferable. They're kind of like they're fungible,

Josh:
I guess. I'm like thinking of the word. I'm like, well, this feels kind of crypto adjacent.

Josh:
There's like these fungible assets that can be transferred that are valuable.

Josh:
So I don't know. There's a chance this goes over. OK.

Ejaaz:
And it's important to not extrapolate too far into the future,

Ejaaz:
like what we can feasibly attain from the data, which, by the way,

Ejaaz:
is publicly available. If you're listening to this and you don't believe anything that we're saying.

Ejaaz:
Maybe we should actually link to a bunch of sources. Maybe we'll link this artifact

Ejaaz:
that you're seeing on the screen right now.

Ejaaz:
The data is all available through quarterly earnings of every single company

Ejaaz:
that is leading at every layer of the AI stack. So you can see the data,

Ejaaz:
digest it yourself and figure it out for yourself.

Ejaaz:
But what I will say is when you look at the 2008 financial crisis,

Ejaaz:
when you look at the railroad crisis, when you look at the telecom crisis back

Ejaaz:
then there was a huge amount of oversupply.

Ejaaz:
Which didn't have the back demand that it stated it had so 2008 people assumed

Ejaaz:
that property prices would just keep going up and at some point

Ejaaz:
that got two head over heels if you look at the railroad they built too much

Ejaaz:
if you look at the telecom they built too many cables right in this case

Ejaaz:
we're constrained by a few things number one physically it takes so many different

Ejaaz:
substrate layers to build a gpu.

Ejaaz:
Every single layer right now in the world of physical atoms is incredibly constrained.

Ejaaz:
There's not enough. The GPU demand is overweight, the actual supply that is available.

Ejaaz:
Number two, the AI demand, which is driving GPU demand, is accelerating much

Ejaaz:
faster than the supply itself can.

Ejaaz:
So if you look at memory as a basis for this, they can increase capacity.

Ejaaz:
This is the top docs, top memory manufacturers can increase capacity around 20% per year.

Ejaaz:
But demand is compounding at 45 to 60% per year.

Ejaaz:
So if you do the math, if that continues, you're going to be in a constrained

Ejaaz:
supply state for like at least until 2028 or 2029 until some of these other

Ejaaz:
chip fabs can get increased. So we're still kind of in a holding period, right?

Ejaaz:
Now, if you look at the backlog for some of these companies.

Ejaaz:
You might be like, well, customers don't want AI as much as these guys are making

Ejaaz:
it out to be. They're just kind of like pushing their bags.

Ejaaz:
Well, look at Google's backlog. It doubled this year in a matter of months.

Ejaaz:
It is now at $460 billion, and we're at the halfway mark of this year.

Ejaaz:
It's probably going to increase even more. This is the case across Microsoft

Ejaaz:
and a bunch of other hyperscalers as well.

Ejaaz:
Then if you look at the GPU rental prices, my favorite thing,

Ejaaz:
which kind of came out this morning, Josh, or maybe yesterday,

Ejaaz:
CallWeave had their earnings, and they said, we recently signed an A100 contract that extends into 2029.

Ejaaz:
For those of you who don't know, and A100 is an NVIDIA GPU that was created in 2020.

Ejaaz:
And its lifecycle prediction back then was three and a half years.

Ejaaz:
Now they're predicting that it's actually going to be good to go until 2029.

Ejaaz:
That's because it's not just being used for bleeding edge training.

Ejaaz:
It's being used for inference and a bunch of other stuff. So the point is,

Ejaaz:
these GPUs are very versatile, NVIDIA specifically, and that's why they raised a crap ton of money.

Josh:
Yeah, and more valuable over time. It's this really bizarre thing in which the

Josh:
useful lifecycle of a hardware object is increasing instead of depreciating for the first time.

Josh:
And we've never really seen this phenomenon at scale before.

Josh:
But like you mentioned, there's not many reasons in which it's going to slow

Josh:
down in the near term future. When I look at this, I'm kind of looking at it

Josh:
like around the corner. And then you can't really see around the next corner,

Josh:
but we have an idea of the first corner. And that first corner is sold out supply

Josh:
for at least 2027, likely 2028.

Josh:
And then by the end of the decade, 2029, 2020, 2030, we start to run into larger

Josh:
constraints, mostly around energy and power.

Josh:
And we start to like run into resource constraints that we don't quite have now.

Ejaaz:
So are you basically saying there's like multiple corners, Josh?

Ejaaz:
Like I'm curious, like, for the GPU specifically, do you think it's like six

Ejaaz:
months? Do you think it's also like 12 months? Like, what's your guess if you had to...

Josh:
Well, there's a somewhat clear trajectory for the next 24 months,

Josh:
like 18 to 24 months in terms of...

Josh:
It seems fairly predictable where we know how many, like the lithography machines,

Josh:
we know how many chips they can create.

Josh:
Then we know how many of those chips can be packaged into usable chips.

Josh:
And then we know roughly how many data centers can be built that can actually

Josh:
turn those chips on and power them.

Josh:
And you can somewhat project that out up to 24 months loosely,

Josh:
very loosely, because there is only so much throughput for these machines.

Josh:
So if you assume everyone's operating at full capacity, you can kind of work

Josh:
those numbers backwards and understand like, OK, they're sold out and they're

Josh:
still not going to be enough to satisfy the demand, assuming the demand continues,

Josh:
which there is no signs of slowing down.

Josh:
All these use cases for AI, particularly around agentic AI, require a tremendous

Josh:
amount of inference and even including efficiency upgrades to the software,

Josh:
something similar to what we imagine SSI is working on.

Josh:
There's still a huge amount of demand that will fulfill that this is jevin's

Josh:
paradox which we really should name jensen's paradox because that seems to be

Josh:
a little more accurate in terms of how this is working

Josh:
but we can kind of project out till then and we know all right gpus fully sold

Josh:
out fully constrained after that things get a little

Josh:
more hairy right it's because you have to assume by that time we'll have something

Josh:
similar to agi asi self-recursive improvements we should be getting a lot of

Josh:
innovation breakthroughs around efficiency and software and we don't really know what

Josh:
the power market's going to look like. We're not sure if we're able to make enough

Josh:
Energy to satisfy the demand of the gpu centers that are being projected out

Josh:
into 20 to 30 so it seems like this is a very long duration thing that's going

Josh:
to need to play out but in the short term in the intermediary term it seems like i mean

Josh:
i'd like to find the steel man against this because this seems important and

Josh:
we should talk about like what are the possible ways in which this breaks

Josh:
but just looking at demand of inference and our capability of serving inference

Josh:
and there is a huge mismatch in the case of inference demand that's just not

Josh:
going to be met for a really long time.

Josh:
So those H100s from 2020, or the A100s, I should say, from 2020,

Josh:
are still going to be useful in 2027, 2028.

Josh:
And that is particularly valuable when you're investing in GPUs at this scale.

Ejaaz:
Well, actually, now that you say it, a lot of that inference demand,

Ejaaz:
at least in the next six months or so, is going to come from AI agents.

Ejaaz:
I'm in no doubt about that.

Josh:
You said the word agents. It's funny you should mention agents because we have

Josh:
something to say about agents from our sponsor of this episode, Ledger.

Josh:
If you're building with AI agents, you are probably worried about security and

Josh:
rightfully so because as we've seen recently, these agents have been kind of

Josh:
doing some funky things.

Josh:
So Ledger has this three-step approach to solving this. The first is that the

Josh:
agent proposes a change, then the human approves the change,

Josh:
and then the Ledger signer actually enforces this change.

Josh:
There's a three-step process to make sure your agent doesn't do anything you

Josh:
do not want it to do they have this thing called the ledger agent stack which

Josh:
is an open source software stack that gives you a series of tools to help you navigate

Josh:
your journey with your agents it works with cloud code it works with codex cursor anywhere that you use

Josh:
your ai models it's available now it is open source you can find the link in

Josh:
the description down below and thank you so much to ledger for sponsoring this episode the agent

Josh:
barrage? I guess we have to talk about the downside effects,

Josh:
right? What could happen if things don't go as well as planned?

Josh:
And where does that risk actually live? So, Ijaz, it seems like this has been

Josh:
fully prepared, lovely by our clawed artifact right here. So,

Josh:
what is actually the downside risk? What do we need to look out for when we're

Josh:
evaluating how to invest around this?

Ejaaz:
Okay. So, we are the Limitless Show. And as anyone who's listened to us for

Ejaaz:
a while knows, we are grounded or we are trying to ground ourselves a lot more from the bullish case.

Josh:
I mean, if you got to say it. Yeah.

Ejaaz:
So there are a few ways where this can obviously go wrong.

Ejaaz:
And I want to kind of like walk through some of these and get your take on this,

Ejaaz:
Josh. So number one, the thing that's like blaring to me is this is all based

Ejaaz:
on the fact that AI demand not only is sustained.

Ejaaz:
So you have paying customers to buy cloud subscriptions, GPT subscriptions,

Ejaaz:
companies paying tens to hundreds of millions of dollars a year for API access. But...

Ejaaz:
That it increases. Right now, it's increasing at a crazy rate.

Ejaaz:
We see all these quarterly earnings, revenues compounded between 100% to 500% year upon year.

Ejaaz:
It is insane, but that's not sustainable. It's not going to keep doing that.

Ejaaz:
It'll presumably eventually plateau.

Ejaaz:
So if that does plateau, or in worst case, if that plummets,

Ejaaz:
then these companies are going to need fewer GPUs, which means that Jensen's

Ejaaz:
$500 billion, these debt-backed securities are going to be in less demand.

Ejaaz:
And that's where you might see a default.

Ejaaz:
The second major thing here is that the GPUs themselves depreciate a lot faster.

Ejaaz:
And that has been the Michael Burry, the guy that did the famous big short back in 2008.

Ejaaz:
That's been his view this entire time. He says that the upgrade cycle for a

Ejaaz:
lot of these NVIDIA GPUs are actually a lot shorter than what Jensen NVIDIA claims.

Ejaaz:
However, in practicality, this seems to not be the case.

Ejaaz:
However, NVIDIA is now releasing a lot of GPUs at a much more higher frequency

Ejaaz:
rate, which means that they're going to replace more of the GPUs in the prior

Ejaaz:
market, in the prior cycle, and they'll start flooding the market.

Ejaaz:
My countess of that is simply you can't make GPUs that quickly.

Ejaaz:
It takes a lot of technical expertise, and it is limited by the likes of TSMC

Ejaaz:
and wafer capacity and a bunch of other technical stuff, which I don't want to get into on this show.

Ejaaz:
So I'm struggling to actually see how these two factors might actually be triggered.

Ejaaz:
But I don't know if you have a different opinion, Josh.

Josh:
Yeah, the thing that I'm looking out for most is the return on invested capital

Josh:
from the large hyperscalers.

Josh:
It feels like they just run the world. They're spending all the capex.

Josh:
They are basically floating the entire economy right now.

Josh:
And if the returns on that investment start to go down, for example,

Josh:
that seems like a very scary thing. So looking at Google's earnings reports,

Josh:
we see like, okay, They have $514 billion dollars.

Josh:
They're spending. Can they keep returning revenue on that on schedule?

Josh:
If the answer is yes, if there's still revenue to be made on AI spend, that is amazing.

Josh:
In the case that that turns and we start seeing earnings reports from companies

Josh:
who are spending huge amounts of capex saying, our margins are actually shrinking.

Josh:
Our revenue is not coming at the multiple that we expected.

Josh:
That seems to be a red flag because that will slow down spending significantly across the board.

Josh:
Basically, we want to make sure that all this stays profitable.

Josh:
So we want to make sure that Inference demand is actually continuing.

Josh:
Companies are actually able to meaningfully monetize this.

Josh:
The enterprises that are spending billions, hundreds of billions of dollars

Josh:
a year on AI spend, we need to make sure that they're actually getting value.

Josh:
Otherwise, they're going to cut those contracts. That is probably the most important thing.

Josh:
The second is just monitoring the rental rates. Like currently,

Josh:
a lot of companies are terrified to re-sign their long-term GP rental deals

Josh:
because the price that they're going to get them at this time around is going

Josh:
to be double the price that they got originally.

Josh:
That is a phenomenon that like no one was really expecting, but here we are.

Josh:
And if that trend continues as well that's something i'm kind of looking out

Josh:
for so i'm looking at what is the hour double

Ejaaz:
Like three years from now right i mean it.

Josh:
Might it might but i'm saying this this is just something that like you should

Josh:
keep a close eye on you know how long these

Ejaaz:
Contracts are for josh that they're signing i know.

Josh:
They vary quite a bit like some are short they're like a year some are longer

Josh:
out to like three years maybe um but i they're they're variable and i know that

Josh:
when the time has is coming to kind of re-sign this contract

Josh:
the price is higher not lower for the same supply so ensuring that this

Josh:
continues this trend continues and even if it doesn't continue making sure it

Josh:
doesn't flip negative because that might change things and granted nvidia has

Josh:
your 25 plunge protection service you're available but you don't really want to put that 125

Ejaaz:
Billion dollars by the way for those of you trying to do the math.

Josh:
That's a lot of money man a lot of money um and then third is just like

Josh:
what the yields actually is from these gpus like how much the real yield yeah

Josh:
the actual real yield and

Josh:
these are also like those mous this is an assigned deal and we've had something

Josh:
similar to this before remember that crazy project back in the day called project stargate where elon and

Josh:
masa or not sorry not elon sam altman and masayoshi son and even donald trump

Josh:
all stood in an office together and they said

Josh:
we're going to spend x billion dollars on this data center build out

Josh:
it hasn't really happened as planned so this is not a contractual obligation

Josh:
to spend 500 billion dollars this is a hey dude

Josh:
We're all rich. We'll commit to like $500 billion and we'll see how it goes.

Josh:
And that's kind of what they have. It's a handshake deal to build this new financial

Josh:
economic instrument around the GPU, particularly as it relates to NVIDIA.

Josh:
So huge win for NVIDIA, probably a large win for a lot of the companies that

Josh:
are not able to afford this, and probably a huge win for the banks.

Josh:
At the end of the day, they seem to always win. And that's kind of what the deal is here.

Ejaaz:
I am really struggling to think about a world, an alternative scenario,

Ejaaz:
where AI doesn't require GPUs, specifically the monopolistic GPUs from NVIDIA.

Ejaaz:
They just have such a stronghold on the entire market.

Ejaaz:
And even if you have some kind of novel LLM architecture that gets created in

Ejaaz:
the future that completely disrupts the current paradigm, you're still going

Ejaaz:
to need hardware to run these things.

Ejaaz:
And that hardware is very much GPUs that are being designed and created by Jensen Huang.

Ejaaz:
So however way I skin this cat, I still think that you're going to need these GPUs.

Ejaaz:
You still need token generation. Gavin Baker has made this point across so many

Ejaaz:
other podcast episodes in the last two weeks that it's ingrained in my head at this point, right?

Ejaaz:
And then the other thing I think about is, okay, well, if NVIDIA becomes a bank

Ejaaz:
themselves and they start taking revenue splits from all these frontier AI labs,

Ejaaz:
that's a completely new revenue line for NVIDIA.

Ejaaz:
So when I think about this with my investing hat on, I'm thinking.

Ejaaz:
Okay, not only is NVIDIA supplying the foundational element that is required

Ejaaz:
to run and inference these GPUs, train these GPUs, but they're also

Ejaaz:
being the ones that are driving cost down per token, right? So like they're

Ejaaz:
doing this with their CUDA software mode.

Ejaaz:
And then I think about the financing side of things. So they're being the financiers

Ejaaz:
of this entire thing as well.

Ejaaz:
Now, that does sound like a house of cards if the demand wavers, if the demand plummets.

Ejaaz:
And I can easily see the market being very volatile and reacting to any kind

Ejaaz:
of headline like they did to this initial headline but i don't know it just

Ejaaz:
seems very bullish to me on nvidia at least and yeah i don't really know how

Ejaaz:
to think about it yeah yeah.

Josh:
And i mean like in this case like i do kind of lean on the opinions of people

Josh:
who are more in the know than me yeah someone like elon who is now exclusively

Josh:
committed to purchasing only nvidia gpus for the new data center build out

Josh:
and they are effectively the best data center builders in the world so i you

Josh:
have to like have a little bit of trust in the opinions of the

Josh:
true experts who are in the arena doing things when i look at that and i see

Josh:
like they exclusively want nvidia and they are building the best fastest most

Josh:
efficient data centers i'm like okay that's pretty good signal like micro hard

Josh:
the new data center that the spacex ai team is working on

Josh:
is i think like a third the footprint of macro

Ejaaz:
Hard right no micro hard.

Josh:
No no there is there's micro hard is

Ejaaz:
A micro hot.

Josh:
Yes and micro hard is about a third of the footprint i might be getting this

Josh:
wrong half or a third of the footprint of macro hard easy but it contains the

Josh:
same cluster of 200 000 gpus wow they just figured out how to do it much more

Josh:
efficiently and much more dense so

Josh:
there's a huge amount of innovation clearly they know things that the rest of

Josh:
the industry does not and when they come out the biggest purchaser right

Josh:
yeah and they're committed exclusively to the nvidia gpu wow and when vera rubin

Josh:
comes out at scale man oh my god i keep saying this for like holy smokes

Ejaaz:
Those models are gonna be insane those models are gonna be absolutely insane.

Josh:
So buckle up good time to be good time to be nvidia good time to be a GPU.

Josh:
Yeah, that's the update. So is this a house of cards?

Josh:
Is it all going to come tumbling down? Is this financial innovation in a new

Josh:
era of the United States of GPUs?

Josh:
Let us know in the comments down below if you enjoyed this episode.

Josh:
Don't forget to share it with a friend who might also enjoy this episode.

Josh:
Ejaz and I, cool story. We were walking down the street last night after dinner

Josh:
and two people walked up to us.

Josh:
They were like, hey, you guys are those podcast guys. You host the show.

Josh:
And we were like, yeah, we do. Like, cool. Thanks for watching.

Josh:
So that's like so cool whenever that happens. And that is because of you sharing

Josh:
with your friends, letting everyone else know that the show exists.

Josh:
And if you enjoyed it, you know, don't forget. Thumbs up. You could subscribe.

Josh:
You could give us a five-star review on your favorite podcast platform.

Josh:
Any parting thoughts, EJs?

Ejaaz:
Yeah. Homework for you guys. If you see us on the street, don't be shy.

Ejaaz:
Come and say hi. We want to meet you guys.

Josh:
Don't be shy. Say hi.

Ejaaz:
Yeah. It's lovely to meet you guys. We've now met people. We've now met listeners,

Ejaaz:
in New York and we've met them in San Francisco.

Ejaaz:
I have people calling in from Europe to my family talking about these random

Ejaaz:
guys that yap about AI. Turns out it's us. Like it's really cool to see the

Ejaaz:
momentum that we're getting here.

Ejaaz:
And it's all thanks to you guys. So if you're one of these people that care

Ejaaz:
passionately about what we talk about and tune in every day, thank you so much.

Ejaaz:
And if you're not, turn on notifications, please. Subscribe to us.

Ejaaz:
We bring the best news, hot, fresh out the oven, every single day,

Ejaaz:
or rather four times a week.

Ejaaz:
And we would love to hear from you. Leave us a comment, DM us on X.

Ejaaz:
And yeah, I think that's it. Thank you so much for listening.

Josh:
See you next time.