Why would it be a dubious valuation scheme? I guess if an investor is looking at just revenue, or only looking at one area of their business finances, maybe? Otherwise it seems like the loss in funds would be weighed against the increase in revenue and wouldn't distort earnings.
Say big green gives a company $100M with the rider that it needs to spend all that on nvidia's hardware in exchange for 10% of the company.
Has Nvidia valued the company at 1B? Say their margin is 80% on the sales. So Nvidia has lost some cashflow and $20M for that 10%. Has Nvidia valued the company at $200M?
I see :) Thanks for clarifying. I would say that I don't have a strong enough grasp on biz finances to do more than speculate here, but:
1) Is all the money spent up front? Or does it trickle back in over a few years? Cash flow might be impacted more than implied, but I doubt this is much of an issue.
2) I wonder how the 10% ownership at 2B valuation would be interpreted by investors. If it's viewed as a fairly liquid investment with low risk of depreciation then yeah, I could see Nvidia's strategy being quite the way to pad numbers. OTOH, the valuation could be seen as pure marketing fluff and mostly written off by the markets until regulations and profitability are firmly in place.
If it was a good valuation scheme, then Nvidia giving them $100 million at a $2 billion valuation would mean that Nvidia thinks the company is worth $2 billion. But if Mistral uses that money to buy GPUs that Nvidia sells with 75% profit margin, the deal is profitable for Nvidia even if they believe the company is worth only $0.5 billion (since they effectively get 75% of the investment back). And if this deal fuels the wider LLM hype and leads other companies to spend just $50 million more at Nvidia, this investment is profitable for Nvidia even if Mistral had negative value.
