Nvidia Invests in Data Center That Will Buy Nvidia Chips; Economists Call It "The Circle of Life"
The arrangement, in which the company funds its customer so the customer can be a customer, is described in filings as "strategic."
SANTA CLARA, Calif. — Nvidia confirmed Tuesday that it will invest several billion dollars in a new data center campus, the operator of which will use the money to purchase Nvidia chips, in a transaction that economists say closes a loop the industry had been drawing for two years.
"It's very simple," said one analyst. "Nvidia gives the lab money. The lab gives the money back to Nvidia for chips. Nvidia records revenue. The lab records an asset. Everybody's numbers go up. Then Nvidia invests in the next one. Naturalists call this a food web. Accountants call it Q3."
The deal follows a pattern in which the chipmaker has invested in model labs, cloud providers, chip startups, and now the physical buildings, each of which subsequently appears in Nvidia's revenue. Nvidia has said the investments reflect confidence in the ecosystem. The ecosystem has said it reflects confidence in Nvidia. Both have said it reflects confidence.
Asked whether the arrangement is circular, an Nvidia spokesperson said the company prefers "flywheel," and noted that the difference is that a flywheel "goes somewhere." Asked where, the spokesperson referred reporters to the company's stock chart.
Skeptics, who have been skeptical for two years and have been wrong for two years, said they remained skeptical. "At some point, real customers have to pay real money for real output," said one short seller, who declined to say how his position was doing. "Until then, it's the same $20 billion going around a table. A very nice table."
Nvidia's stock rose 4 percent on the news. The data center operator's valuation rose 30 percent. The chips have not been manufactured yet, but are, according to both parties, "spoken for."