"The less prudent you find the actions of others, the more prudent you need to act yourself," said Oracle of Omaha, Warren Buffett.
(NBIS), (AMZN), (GOOG)
You know who isn’t spending $5/hour to run an H100? A company you’ve probably never heard of called Nebius Group (NBIS).
While everyone else is throwing money at GPUs like it’s 2021 all over again, Nebius is quietly running sub-$0.03 racks at 90%+ utilization. I’ve toured their facilities. I’ve double-checked the numbers. It’s real—and it’s borderline ridiculous.
I spent the better part of last month wading through server rooms in three countries trying to understand what makes Nebius tick, and I’ve finally figured it out. It’s not just about the machines—it’s about the margins.
When you're scaling GPU infrastructure in the AI gold rush, pennies become billions, and Nebius has found a way to shave those pennies better than anyone else.
You wouldn't believe the scene at their Serbian facility. While everyone's fretting over getting their hands on H100s at any price, these folks have engineered an operation where each GPU costs them mere pocket change to run—under $0.025 per GPU-hour. That's not a typo. A quarter of a cent.
I had to double-check my notes when their CTO casually dropped this figure during our tour of their liquid-cooled racks, which are humming along with near-perfect utilization rates. It’s this kind of operational efficiency that translates directly to their aggressive pricing strategy.
The industry has been obsessing over CoreWeave’s $4.76/hour pricing for the H100 HGX, but Nebius is quietly offering the same chips at $3.15/hour for those willing to sign 12-month contracts.
My sources at two AI startups confirmed they’ve already jumped ship from AWS for this pricing alone. The math is simply too compelling to ignore when you’re burning through compute at AI-training scale.
This pricing advantage doesn’t materialize from thin air. What most investors haven’t grasped yet is the structural edge Nebius has engineered beneath the surface. They’ve poured nearly $2 billion in CapEx over three years building what amounts to the Formula 1 car of AI infrastructure—proprietary data centers with custom cooling systems that lower operational costs by up to 30% over five years.
One executive who requested anonymity told me, “We’re essentially running the hyperscaler playbook without hyperscaler overhead.”
This capital-intensive approach reveals a fascinating long-term strategy: while Nebius minimizes gross margins through their ODM approach to around 2%, this positions them brilliantly for the long game.
When public pricing for H100s hovers at $2.00 per hour against their 2.5-cent operating costs, the margin potential becomes staggering once that initial investment is recouped.
An old hedge fund buddy of mine who’s been loading up on shares put it best: “They’re printing money at scale once the CapEx is absorbed.”
And it’s not just about cheap electricity in Serbia (though that certainly helps). The real moat is their thermal engineering.
Their custom-designed, liquid-cooled racks—developed by a team poached from a major European physics lab—let them run GPUs denser and cooler than anyone else. No throttling. No wasted space. Just pure, relentless compute per square foot. Every engineering decision compounds the cost advantages across the stack.
To be clear, not everything is champagne and cash flow. Their approach comes with long payback periods and enough geopolitical risk to make certain LPs sweat.
Their reliance on gray market GPU sourcing also raises eyebrows in an era of chip nationalism and tightening export controls. But these risks feel more like calculated gambles than reckless moves. Nebius knows exactly what tradeoffs it’s making—and why.
Which brings us to what might be their boldest move yet: sovereign AI. While AWS and Google (GOOG) fight over Fortune 500s, Nebius is carving out entire countries.
Their in-country deployment model and containerized LLM stack—complete with post-quantum encryption and localization for Cyrillic and Balkan languages—is winning government-adjacent clients at an impressive clip. In regions where digital sovereignty is non-negotiable, Nebius is delivering tailor-made infrastructure with just enough red-teaming to get through procurement.
It’s a classic land grab: go where the big guys won’t, lock in first-mover advantage, and scale the margins later.
This regional playbook couldn’t come at a better time. The GPU-as-a-service market is expected to hit $100 billion in the coming years, and while investors chase the usual suspects, Nebius is quietly building the rails underneath it all.
Their trajectory feels uncannily similar to AWS in the early 2000s—back when the cloud felt like a niche bet, not the juggernaut driving 60% of Amazon’s (AMZN) operating income.
Having watched multiple infrastructure cycles unfold over the decades, I’ve learned one thing: the people who build the rails win. And while most headlines are chasing the trains, Nebius has been laying steel in the dark.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Mad Hedge Technology Letter
April 16, 2025
Fiat Lux
Featured Trade:
(AMERICAN TECH ABLE TO OUTFLANK)
(NVDA), (TSM), (AAPL)
I understand that the U.S. administration wants to bring back American manufacturing, but that will not include Silicon Valley manufacturing.
There is a higher likelihood that if China is a no-go zone, American tech companies will venture out to a low-tariff, cheap labor country to continue their path to profits.
If you look through the numbers, it doesn’t make sense for American tech companies to manufacture goods in America.
The costs are too prohibitive.
Silicon Valley tech firms that are public on the New York markets have a fiduciary responsibility to shareholders to sustain short-term profits.
There is no mandate stating that these American tech companies must be manufactured in any specific sovereign country.
Silicon Valley companies are global, and American jobs lose out because of that.
This is a tough nut to crack because wages in rich Western countries dwarf the nominal amount in more affordable places.
U.S. Commerce Secretary Howard Lutnick said during an interview that the (China tariff) move was temporary.
Instead, he explained, tech products will be tariffed as part of the administration's planned duties on semiconductors, which could be announced later this week.
It's not just about timing. Companies would also need the workers to build devices.
While there's a degree of automation possible and while many of the components needed are made in the US, there's still a need for tens of thousands of trained electronics assemblers willing to work long, arduous hours in highly repetitive tasks.
Companies including Nvidia (NVDA), TSMC (TSM), Apple (AAPL), and others have announced increased investments in the US to win over Trump and avoid tariffs.
Nvidia said it will produce $500 billion in AI infrastructure in the US over the next four years through partners including Foxconn (601138.SS), TSMC, and Wistron (3231.TW).
And while that doesn't take away from the fact that the companies are pouring money into the US, it doesn't exactly support the idea that they're moving vast amounts of their manufacturing capabilities to America.
Even if companies brought their manufacturing bases to the US, they'd still have to deal with importing certain parts from abroad.
It's not just Apple that's contending with manufacturing headwinds; everything from laptop makers to display producers would face the same problems if they were to move to the US.
According to some estimates, prices on devices could double, resulting in demand destruction as consumers seek out less expensive options or hold onto their existing smartphones and computers for longer periods.
While it's unlikely manufacturing is coming back to the US, there's still plenty of uncertainty about how tech companies and consumers navigate the next four years of tariff shocks.
The biggest winners appear to be Vietnam or India, and much of the American tech manufacturing has their sights set on these places to reduce costs.
In short, this won’t destroy American tech and their shares will outperform in the long run, but in the short-term, it hurts, because it puts doubt into where they will produce their gizmos and gadgets.
At the very least, this gets American tech out of China, and I believe the federal government would be happy if businesses migrated to a more neutral country, even if they don’t come back home.
Either way, after this all blows over, there will be a great buying opportunity in American tech companies, which will all be trading at a discount.
(SURVIVING THE TARIFFIED WORLD)
April 16, 2025
Hello everyone
The global economic landscape is being reshaped as we speak. There are now heightened concerns about economic growth, currency stability, and financial retaliation. We need to consider China’s potential response via US Treasury yields and other retaliatory measures.
On April 2, 2025, President Trump signed Executive Order 14257, imposing a 34% tariff on Chinese imports, pushing total levies above 70% for some goods. China retaliation on April 4 with a matching 34% tariff on US imports, plus rare earth export curbs. This is reminiscent of the 2018 trade war.
The US aims to boost manufacturing and cut reliance on China, whose share of US imports fell from 21% in 2018 to 14% in 2023. Yet, higher tariffs will likely raise consumer prices for electronics and machinery. The US-China Business Council estimates that revoking China’s trade status could cost 744,000 jobs. With a $36.2 trillion national debt, the US faces refinancing challenges in 2025 as Treasury yields rise, a vulnerability China could exploit.
The US faces a delicate moment in its fiscal policy. With national debt exceeding $36.2 trillion, the Treasury is set to refinance substantial portions in 2025 amid rising yields. The 10-year Treasury yield has surged recently, reflecting market unease over tariffs and inflation expectations. If China leverages its $1.11 trillion in US Treasury holdings, it could exacerbate this pressure.
China’s economy, slowed by post-COVID recovery and property debt, faces a tariff hit. The Economist Intelligence Unit predicts as 20% US tariff increase could cut GDP growth by 0.6 points through 2027, with a 60% tariff costing 2.5 points. Exports to the US (2.9% of GDP in 2023) remain key. China plans a 6.9 trillion-yuan stimulus and rate cuts to hit a 5% growth target, but success is uncertain amid trade disruptions.
The yuan has weakened to its lowest since September 2023, with the People’s Bank of China (PBOC) seemingly willing to let it go lower. A weaker yuan could offset tariffs by cheapening exports, potentially sliding to 7.7 to 7.8 if tensions rise. However, this risks capital outflows and higher import costs, as well as global ripple effects from a broader monetary breakdown.
Alongside the changed economic environments, China holds several strategic tools for retaliation against the US.
China holds $1.11 trillion in US Treasuries and could sell or halt purchases to spike yields, raising US borrowing costs as $6 trillion in debt matures in 2025-2026. This is China’s primary trade war weapon.
It dominates the global rare earth supply chain – critical to military and high-tech industries – supplying roughly 72 per cent of US rare earth imports, by some estimates.
On March 4, China placed 15 American entities on its export control list, followed by another 12 on April 9. Many were US defence contractors or high-tech firms reliant on rare earth elements for their products.
Export restrictions on rare earths could further pressure US tech and defence sectors, though escalation risks backlash.
China also retains the ability to target key US agricultural export sectors such as poultry and soybeans – industries heavily dependent on Chinese demand and concentrated in Republican-leaning states. China accounts for about half of US soybean exports and nearly 10 per cent of American poultry exports. On March 4, Beijing revoked import approvals for three major US soybean exporters.
And on the tech side, many US companies – such as Apple and Tesla – remain deeply tied to Chinese manufacturing. Tariffs threaten to shrink their profit margins significantly, something Beijing believes can be used as a source of leverage against the Trump administration. Already, Beijing is reportedly planning to strike back through regulatory pressure on US companies operating in China.
Let’s not forget the position that Elon Musk holds. As we understand it, he is a senior Trump insider who has clashed with US trade adviser Peter Navarro against tariffs. Furthermore, we know he has major business interests in China. These facts could be a strong wedge that Beijing could exploit to divide the Trump administration.
As I pointed out last week in my Post on Friday (WHO’S IN CONTROL – TRUMP OR XI?) the changing dynamics could significantly reshape the geopolitical landscape of East Asia, bringing together countries to take advantage of a strategic opportunity to displace American hegemony.
Southeast Asian countries could see a strengthened alliance and an “all-round cooperation”, which offers an opportunity to directly erode US sway in the Indo-Pacific.
A promising strategic opportunity is building in Europe too, with the European Union contemplating strengthening its own previously strained trade ties with China. Both sides have jointly condemned US trade protectionism and advocated for free and open trade. EU and Chinese officials are holding talks over existing trade barriers and considering a full-fledged summit in China in July.
China is watching the US dollar. It sees in Trump’s tariff policy a potential weakening of the international standing of the US dollar. Widespread tariffs imposed on multiple countries have shaken investor confidence in the US economy, contributing to a decline in the dollar’s value.
Traditionally, the dollar and US Treasury bonds have been viewed as haven assets, but recent market turmoil has cast doubt on that status. At the same time, steep tariffs have raised concerns about the health of the US economy and the sustainability of its debt, undermining trust in both the dollar and US Treasurys.
The tariff standoff between the US and China is more than a trade dispute, it may well reveal a world at a historic inflection point, where economic strategies and asset choices will define the next decade. For the US, higher costs and refinancing woes loom; for China, growth hangs in the balance, with yuan depreciation a risky but viable counter.
China’s potential to sway US Treasury yields adds a financial warfare dimension – a weapon that should not be taken lightly. It has the tools to inflict meaningful damage on US interests. Perhaps, more significantly, we need to understand that Trump’s all-out trade war is providing China with a rare and unprecedented strategic opportunity that could forever change the economic landscape.
AND
Cheers
Jacquie
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
April 16, 2025
Fiat Lux
Featured Trade:
(THE IRS LETTER YOU SHOULD DREAD),
(TESTIMONIAL)
