(Almost) Daily Musings

Evening all

when frequenting German pubs — such as Oma’s Apotheke, the Urbaneck or perhaps the Dortmunder Pilstreff — one quickly realises: Cash is king. So much so that ATM manufacturer Diebold Nixdorf just issued $950m in new debt to enable us to keep the tabs open.

Confided in the knowledge that the next working ATM will never be far away, allowing me to deploy capital, I share my musings on markets and those who raised capital.

Cheers
Philip

Chart Art

Pretty Bubbles in the Air

Nscale raised a $155m Series A. The AI GPU cloud platform provides scale computing to fuel our insatiable desire for GPT questioning. For context on funding in the space:

• 47 deals in the AI neocloud sector this year for a total of 3bn in capital

• Tearsheet of the last five years: 232 deals. 3 exits — Kao Data, CUDOS, Paperspace. $9bn invested.

• Median revenue multiple? A frothy 35.8x

• Looking at the Pitchbook data the weighted average valuation step up between Series A and B is about 3.27x and takes about 1.43 years to complete. This is markedly faster than the average time between rounds in the overall venture capital space

• Active investors include: Benchmark, Intel Capital, Amplify Partners, Andreessen, Celesta

Neoclouds tickle my fancy. Not just because I can rest assured knowing that I will never be interrupted in my GPT question rabbit holes. But because its a big throwback to one of my favourite FT pieces this year. The Neocloud leverage boom. MBSs are so 2007. Its all about Asset backed credit for GPUs. Some names that are prevalent in the market are Corewave, lambda labs and Crusoe — all have acquired thousands of NVIDIAs hottest invention since sliced bread. Orso Partners short selling legend Nate Koppikar notes: Chips are depreciating. Not appreciating. Not really a good status for the asset that is backing a credit. Collateral should have value. At least so I learned. Furthermore — the market for chips is concentrated to say the least — and clearly NVIDIA has some favourites in their books. Right now CoreWeave is on grand footing but down the line - only future will tell. Or ChatGPT if more series As like this come around. Some more context:

• CoreWeave bagged $2.3bn in 2023. LTM their credit tab runs up to $10bn. Lenders include Blackstone, Carlyle, Megnetar Cap, JPM, GS, MS

  • The company also announced their IPO in May this year. Estimated to offer $23bn to the public markets. Keen to see what the terms of the debt were when they release their filings.

• Demand fuels supply — more lenders are crowding the market — terms are likely going to get more aggressive. Feels like all the pieces are in place to fuel a bubble aka a neocloud.

On that note: If you are looking for an anthem for bubbles, look no further: Westham has known it all along.

Never stressed about distressed

Leverage is an amplifier. Of yields. And of my ability to write. The market for credit never ends supplying content to discuss. Default rates and distressed exchanges tend to flow in line. A little intermezzo: Distressed Exchanges. In short. An Opco in financial trouble aiming to avoid bankruptcy processes and offering to exchange existing debt for another form of financing — new debt, equity, something in between, cash. Now the distressed exchange markets are booming. Considering about 35% of companies offering distressed exchanges go on to default within 2 years time, I believe there is an argument to be made that default rates are going to follow suit in due time and ramp analogously. But why would that bog us down? The high yield volume is up to new highs this week — exceeding all weeks in the past month.