AI's Mandela Effect, xAI❤️Nvidia, & More

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THEWHITEBOX

TLDR;

Welcome back! This week, we debut a fresh new look for the newsletter, while also covering very exciting data about the latest AI monstrous deal, optimism-fueling data about GPUs, and the fascinating reality behind AI’s problems with, among all animals, seahorses.

We also have time to discuss the emergence of what I believe are the second generation of AI startups: those built on top of specialized models, and the ones that will actually make money.

Enjoy!

FUNDING

NVIDIA Invests in xAI

Another day, another massive NVIDIA AI deal, this time involving Elon Musk’s AI company, xAI.

NVIDIA will contribute $2 billion out of the $20 billion that xAI is raising (of which $12 billion is debt), marking another substantial round from an AI Lab, second only to OpenAI’s $40 billion and larger than Anthropic’s largest-ever round of $13 billion.

At this point, we have become totally numb to numbers that would have been considered batshit crazy a few years ago, especially for a company that’s just two years old and basically pre-revenue.

The goal, of course, is to use this money to invest in AI infrastructure and hardware, building massive GPU data centers. Specifically, this money will most likely be used to make Colossus 2, the first-ever gigawatt-scale data center, a reality, a project that will exceed $50 billion in total capital costs, including land, other equipment, and power.

As for the terms of the deal, NVIDIA is not only directly investing in xAI but also through an SPV (Special Purpose Vehicle) that will handle the GPU purchase and leasing arrangement. That is, this SPV, jointly owned by both NVIDIA and xAI (and others), will buy the chips and lease them to xAI.

TheWhiteBox’s takeaway:

The point behind the SPV is purely based on accounting best practices. For xAI, a massive $20 billion capital expenditure (CapEx) now becomes an operating expense (OpEx), making xAI's finances appear healthier while also isolating risks in case xAI encounters trouble.

This also makes the GPUs an easier asset to securitize if they need to be sold or used as collateral for loans, as the GPUs remain in a separate entity altogether. This is important, as you’ll see in the next news below.

However, the big winner here is, of course, NVIDIA; this is a no-brainer because they can finance the deal simply by announcing it. But what does that mean?

It’s not like NVIDIA is handing out its free cash flows to everyone. Instead, they use the resulting excitement from the deal announcement, pushing their stock higher, to finance the deal. In fact, the stock went much higher (2.2%, or $26.4 billion), so the ending result is NVIDIA “netting” 24 billion.

They aren’t really netting anything. Still, they are using these announcements of ‘x’ billions to increase their valuation by several times the value they are investing based on the announcement.

Honestly, it’s all becoming really tiring at this point. There’s no monetizable demand at all, just investments disguised…

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