Goodeye8

I’m already too cynical, let me be naive about some things.

But where did OpenAI get the money to buy those chips (+10% of the company)?

I’ll admit, useless was a bit hyperbolic statement. But with stocks there is a concept called margin call which in layman terms means that if the value of your stocks (relative to the amount of what you loaned) drops too low the lender will ask you to either pay off a portion of the loan (to bring the existing loan in line with the new evaluation of the stock) or add additional collateral (to raise the total value of the collateral to be in line with the remaining loan). If neither of those things are done the lender will sell your stocks at whatever price they can get to pay off the loan (either fully or partially).

Mortgages don’t have margin calls. If the houses loses value it just loses value and the bank doesn’t care as long as you keep paying the payments.

Someone somewhere took debt

Where would OpenAI get 78bln to pay AMD? It’s very unlikely that money would come from their existing revenue streams, so it most likely would come from either external investors or a loan. Loan obviously comes with debt so let’s say it came from an external investors? But where did they get that kind of money? Investors rarely have billions just sitting in the bank so they had to liquidize somehow. Maybe they sold some of their non-liquid assets, but most likely they took loans against their assets (because loaning is cheaper than selling) which means we’re back to there being debt somewhere.

the simple answer is that the people buying AMD stock are the ones paying for those chips

That is the simple answer because people would buy the stock, stock price would go up, OpenAI 10% would end up being worth 78bln, OpenAI dumps the stock and that money goes back to whoever financed the 78bln. Debt would get paid off and no additional debt would exist (except for people who bought the stock without having the money to buy the stock). But that’s a simplistic way of viewing this whole ordeal.

In my eyes this deal is a speculative investment leveraging debt.

I don’t see an issue here. In my eyes there is debt created to accumulate 78bln and the speculative part is using AMD stock to cover the debt. If the pump and dump fails would there not be debt?

Money did exchange hands but it had to come from somewhere, OpenAI doesn’t have 78bln just lying around. Someone somewhere took debt so OpenAI could pay that price and OpenAI is planning on paying back that debt with AMD stock. That why I said the simple answer is that the people buying AMD stock are the ones paying for those chips. But these things don’t happen in an instance, they take time which is why I said the complex answer is that nobody really knows who is going to pay it back. As a simplistic example, while the “dump” of AMD stocks hasn’t happened someone can borrow money against the overpriced AMD stock. Now, if whoever gave the actual money to OpenAI comes asking for their 78bln back and OpenAI doesn’t have it they will dump the AMD stocks to pay it back and then the person who used AMD stocks as collateral will be asked “Your collateral is now useless, give me more collateral or pay me back” and that money will be found elsewhere until someone goes broke and the debt gets defaulted. Of course that won’t happen as long as nobody comes asking for the spent money.

In my eyes this deal is a speculative investment leveraging debt. OpenAI itself doesn’t have the debt but it is somewhere because the actual liquidated money had to come from somewhere. And there is speculative investment with the hopes of AMD stocks going up enough to offset that debt. The 78bln might not end up as debt for OpenAI, but it might end up as a different debt for the loans that used propped up AMD stock as collateral. IMO it doesn’t really matter where exactly the debt ends up because if the bubble pops AMD stocks are also going to take a hit and someone somewhere is going to end up paying for the debt that was caused by this 78bln deal.

Pretty much. OpenAI will “give” AMD 78bln for 10% of the stock and the chips openAI actually wants. This whole ordeal has been publicly paraded like OpenAI and AMD partnering up, which has already pumped up AMD stock price by 45%. Thus openAI will eventually get their 78bln (which they actually never had in the first place) back in AMD stock.

So who actually pays the 78bln? The simple answer is AMD stock holders, currently the ones who have bought the stock after the announcement and later the ones who bought it before it crashed. The more complex answer is that the stock market at this point is just a speculative mess where numbers are made up because the price isn’t dictated by what the company is currently capable of doing but rather what the company potentially could be doing in the future. Who knows who is actually paying for it because AMD stocks will get used elsewhere (for example as collateral in a loan) and the economic growth with absorb the costs. In short, we might as well imagine nobody paid for the chips.

In short, brace for another “once in a lifetime” economic crash.