NVIDIA gross margins lately are like 75%, so it's more like you give me $100 to buy something from me that cost me $25 to produce, hence I end up with $100 worth of stock in your company and it only cost me $25.
Now if you check, these companies selling their stock like this tend to have large amounts of debt. If their stock becomes worthless, you just wasted $80 producing an item that their creditors have first dibs on. And liquidating your shares immediately to ensure your gain, would weigh on their stock's value, potentially to the point where their stock would be only $80 worth, and you wouldn't be gaining anything anymore. Your earnings would then tank, alongside them.
You also lost out on $75 worth of cash revenue (opportunity cost from selling the same thing to a different customer), so really you just took stock in lieu of cash.
It'd be different if Nvidia (TSMC) had excess production capacity, but afaik they're capped out.
So it's really just whether they'd be selling them to OpenAI and getting equity in return or selling to customers and getting cash in return.
If OpenAI thinks their own stock is valued above fundamentals, it's a no brainer to try and buy Nvidia hardware with stock.
Sure, but how's that a cheat code? If you normally sell something for $100 that costs $80 to make, and then use that $100 revenue to buy $100 of stock, this is an identical outcome for you.
Again, this is not a cheat code: if you sell $80 of cost for $100 of stock, the stock you now own can go up or down, and if you overvalued it then down is the more likely direction.
In your accounting, you can claim that you have an investment worth $100 and book $100 worth of revenue. You're juicing your sales numbers to impress shareholders - presumably, without your $100, the investee wouldn't have bought $100 worth of your product. The last thing your shareholders want to see are your sales numbers stop growing, or heaven forbid, start shrinking.
Nvidia is not the first company to "buy" sales of its own product via simple or convoluted incentive schemes. The scheme will work for a while until it doesn't.
> Let's say I give you $100 on the condition that you buy $100 worth of product from me. And let's say that product cost me $80 to produce. Isn't that basically the same as me giving you $80?
Why limit myself to $100 for a product that costs $80? I could just as well give you $1 000 000 to buy this same product from me. That way, I have a $1 000 000 share of your company, and I have $1 000 000 in revenue, and it only cost me $80.
This distorts the market for the product we're trading, and distorts the share price for both my company and yours.
And inflate your revenue by $80.
Laws on competition make this kind of arrangements illegal, so you would have to exerce influence and have the invested in company pretends you happen to have been picked among competitors.
In any case the SEC will be focused on whether the filings aren't made up to fraud investors, so they could reject the IPO, of the invested in company. Your own entity also is at risk.
We all know MS gets away with it, they have good legal goons who find way to make all of it appears fair with regards to the law.
Also Nvidia margins are waaay higher than 20%
The issue is that there's no organic force behind those changes and it makes everything hollow. You could create a market inside a deserted area and make it appear like a metropolis.
What if the product only costs you $20 to produce?