The Black Market for AI GPUs with Steve Burke

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2:49What's up online?

3:19MCA complaint from Bloomberg. What is happening? Yeah, it's so the video, it's really cool video where we went all over China finding these GPUs. As part of that, we included a recap of all the news of export controls where the U.S. controls GPUs that are above a certain performance threshold and the allowance to export those to China by American companies. And so that was the story. We wanted to look into, okay, but they're still getting to China, and so how is that? And as part of that recap, go through all the news. We've got clips of various politicians. There was a clip of Obama in there, and there was a clip of Trump in there, a couple of them, talking about AI or GPU export control bans.

4:08Of course, AI, I know, Ed, is one of your favorite topics. My faves, yes. Yes, me as well. uh and um yeah so uh we received a copyright strike from a small small publication called uh bloomberg oh is that yeah so that strike took the video offline and uh now we are currently challenging it and so the strike was for specifically i believe it was minutes 22 until minute 23 15 in the video of donald trump speaking the president of america correct yes that is ludicrous and you went to new york specifically to have it out with them did they what where do we stand as we speak because this is going out in about a week from now it's august 28th so who knows what 26 even don't know what happened next yeah if it goes out in about a week then And that'll be pretty close to when we should have an update from YouTube.

5:09Because the video is off right now. Correct. The video is gone. And it's very interesting how copyright strikes work. Because if basically the way it works is a company files a strike, they decide if there's infringement of some kind, and they file it. YouTube then, basically, especially for a company Bloomberg size, will automatically approve it. it's then up to the creator to dispute that the video is offline during this entire process the any money from the mid the video is held at least in escrow um and so then you can dispute it if you want at that stage youtube then decides if it's going to accept your dispute it accepted ours is written by a lawyer so that makes sense uh and then they step back and they're like okay we're not involved anymore it's between you guys and so the party that filed the claimant so So Bloomberg here has 10 business days to file proof of lawsuits.

6:09So if they submit to YouTube proof that they are suing us, which thus far as we record this they have not, then at that stage YouTube would keep the video offline and they kind of let the two parties resolve it amongst themselves. If they don't submit any proof of a lawsuit or they don't file a lawsuit and then show YouTube that they've done so, again they haven't at this point, then basically until business days the video goes back up uh we get over for the 10 days in between and uh and then the money in theory should be released uh back to us the ad revenue that was made from it if it follows that course but the biggest damage that's done is from the loss of momentum in those you know total time period maybe 13 days or so but why would bloomberg do this that are they really that attached to videos of donald trump or is it something else i mean i yeah we talked about this in our video where we flew out to try and speak with them um i have a number of theories we don't know their motive precisely but you know there's a few strange things going on where um first of all i've noticed that uh they have not claimed any or struck any that i'm aware of of the re-uploads of the video so that's interesting because there's hundreds of them uh it was just hours that went up initially um secondly we have used that clip before and that hasn't been stricken uh and so specifically in this black market video and um yeah the theories we came up with were there's some competing content from bloomberg where they attempted to do what we did.

7:54It was really a failed attempt. They tried to find smuggled AI GPUs in China as far as they kind of presented it in data centers. They were unable to do so. They couldn't get any access. They filmed sand in the desert. They go home. There's also... Wait, that's all they got? Yeah. They drive around in a desert. They point the camera at some buildings that are being constructed. They say, you know, So there's AI GPUs in them, their hills. And then that's about it. It's kind of funny that you appear to, on your own and with your team, obviously, able to get this access that these large legacy media people don't, which it's meant to be the other way around based on what everyone says.

8:38So what is it that makes your approach different to Bloomberg's? Why did you get stuff that they didn't rather than just the desert? Right. Yeah. Well, to be fair, we did not film a desert, so they did have an exclusive there. But I think it comes down to the approach where we looked at it like this is an interesting concept, this idea of black market GPUs. but from my point of view we approached it as well let's just see what are the people involved in this chain think and do they think it's a black market or do they just think it's a market and a lot of the people we worked with were just I think amused at the concept of being involved in the media process and wanted to see how it works and so I honestly I think a lot of that access especially to the people who are just sort of like normal people they're not these big you know executives at some huge corporation they're they're middlemen and they're people transacting gpus on the ground uh i think for them if you go into it without this presupposition of some kind of particular uh i don't know leaning or or ethics of whether what they're doing is or isn't okay or whatever.

10:03Or even expecting what you'll find in advance. Exactly. Yeah. I think if you go in with an open mind of like, we're just going to hang out with this guy for a day and just observe his job, people are, you know, they're pretty happy to share that. So, yeah. How did you actually start though? So you came up with the idea that you wanted to see how illicit GPUs are making it into China. Did you have contacts in China or Hong Kong and so on that you talked to in advance and they kind of said oh if you come here we can show you this what what was the process yeah the process was really cool um we're still kind of learning how to how to iterate on this but each time we're the big thing we learned this time for this investigation was um really just trying to that first contact matters a lot and being able to work with that first person we find to then find their contacts and kind of follow the chain down the line.

11:01And so the first guy we found is a professor at the Chinese University of Hong Kong. He buys and uses these high-end GPUs in servers for educational purposes and research purposes. And as soon as we made contact with him, we were able to work with someone who, first of all, speaks native-level excellent English, so that certainly helped. And then secondly, who has a lot of local knowledge and contacts. And I think a lot of it is just kind of knowing which, in our case, which link in the chain you need next to make the story make sense. So in his case, he's a user of these GPUs, so next we need is some kind of supplier, and then we need their supplier.

11:51yeah so what it's all quite complex though i did watch the video and it was it was what three three hours or so or more even it was really wonderful and so what exactly are the gpus that are restricted was it just ai gpus was it like consumer level ones as well what is exactly being handed around uh it's both so on the high-end side there's uh some smuggling and presence of these data center class gpus so that'd be things like uh h100s um hopper 100s a100s we actually physically saw several of those and um and things like that on the consumer side there aren't as many restricted consumer GPUs, but there are a few.

12:41So the RTX 5090 is one of them that has 32 gigabytes of video memory. So that's very valuable for these use cases. The RTX 4090 actually is another one. And that one's kind of amusing because it's so easy. And that's a consumer GPU, right? Yes. Consumer GPU. Yeah. And last gen consumer GPU at that. But it's easily modified to carry double the video memory as the actual official NVIDIA spec in the SKU. So they can increase it from 24 to 48 gigabytes of memory, which is extremely valuable for these training and LLM-type tasks where it may be a last-gen, so it's technically a little bit slower. But if you can fit it in memory, you can still run it, versus if you can't fit it in memory of the model, you may not be able to run it at all.

13:35and so those are the consumer cards the 4090 though is interesting because uh one of the guys we spoke to who um is effectively a buyer and seller of these banned gpus he was asking me on camera uh he was seeking confirmation of well but is are you sure the 5090 is banned yeah and i said yeah it's i'm sure here it is on the list and he was so confused because he said but they're just all over the market next door. We walk over there and there's dozens of them.

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16:50it's so strange as well because it doesn't seem like it you basically walked off the plane and had a price sheet from just a guy like it wasn't clear how you got the price sheet exactly and perhaps you can't say but it was just yeah these things are banned other than the fact we have just like guys who sell them literally everywhere yeah and how are they getting in uh so there's a couple ways the one of the ones that we showed in the video is really interesting um to the very end of the process we actually this is one of the reasons we delayed initial publication we were able to uh with help of a viewer locate someone you could actually classify as a smuggler in the US so someone from China in the US and he buys GPUs from people in the US he drives around all over and buys mostly 4090s which are in high demand in China and then he'll strip those down so that could be removing the cooler I don't think this particular guy desolders them I've heard stories of some people desoldering GPUs and mailing them that would that would reduce your shipping cost a lot, increase your margin.

18:02But he buys the 4090s, ships the boards back. His profits about$300 US per board before taxes. It wasn't 100 % clear if he does or doesn't pay taxes. And then at that point, once they are either shipped into Hong Kong or Macau directly, if they feel gutsy enough, or indirectly through a third country, a middle country where there is no export control. Then they arrive and they get redistributed from there. They're sometimes hand-carried as well by students, international students who just fly back with a 5090 they bought at Best Buy or something and they can double their money roughly if they're lucky.

18:44That's so wacky. It's wacky that there is such a big black market but I guess the export bans just created it as did this whole AI, this crazed AI moment. did in fact while you were over over in hong kong did you actually go to china i can't remember or whether it was just in hong so did you this is an anecdotal thing how was the pressure of ai there how big was the conversation the advertisement did you see it on the same level it's fine if you didn't i'm just curious i saw it more in taiwan which we went to as well uh so yeah after the china trip we went over to taiwan and um i don't think it made it into the cut but we shot a short clip of just a bus, like a public bus with a gigantic AI laptop advertisement on it.

19:31So I would say it's kind of, at least there, it's similar to what you see here where it's, you know, if you're anywhere in the vicinity of a Best Buy or a city that has technology dealers, then you're going to see AI ads. In China, yeah, you saw it in the tech markets for sure, some banners but it's just it i don't know that's i i only understand chinese if i'm actively trying to understand it you know so it's i think a lot of that gets filtered out for me right i was gonna yeah i assume you speak some you seem to speak some chinese i can't speak anything but english so i could not correct your chinese at all you do speak more proper english than i do though so yeah yeah i speak all kinds of it these days it's it's not going well people criticize my accent all the time so as far as how the government sets these limits one thing you did really eloquently towards the beginning of the video as well was you kind of went through how arbitrary the limits seem to be and how nvidia seems very capable of adapting around them to the point they almost doesn't make sense yeah yeah they they've modified the regulations a few times and it's so...

20:47This particular part, I don't really blame NVIDIA for for this, which is just trying to... The government sets some regulations and a company says, okay, we'll comply with these and then they comply with them and then the government kind of says, no, wait, not like that. Yeah, and that's very standard for pretty much all regulations. It may be, it's good or bad, what have you, but it's not... It happens all the time with companies. Yes. And in this case, one of the things that as the, I guess, AI world developed and the applications, one of the things that changed was this understanding that memory capacity is basically the most important aspect of it.

21:33in the initial versions of the formula, didn't consider memory in any scenario. From what I remember, it was based on the marketed flops of performance on the spec sheet multiplied against the bit length of the operation or something like that. And they later added memory bandwidth. Memory capacity, though, is still, as far as I'm aware, right now, is still not considered in the formula. yeah it just it feels just arbitrary but i imagine also it's quite difficult to find a way to do this especially when the people set setting the regulation might not have the best handle on computers yeah i i think i think the best way to do this would probably be if they wanted to and i'm not i don't have a particular one way or the other but if they wanted to control it i think the best way is probably some kind of benchmark or set of benchmarks just like you would do for a review where you say, okay, if it exceeds some performance threshold in this real-world use case or multiple of them in aggregate, then it's export-controlled.

22:41But instead, they just kind of calculate based on the spec sheet. And the companies that make these things, obviously, full appropriate credit to NVIDIA, the company is extremely confident with making GPUs. They know what they're doing. and they're going to know a lot more about how to tweak those dials to comply than a government agency will. So on the subject of NVIDIA knowing things, do you think that they seem aware of any of this? Like any of this smuggling happening? Did you get any comment out of them? We asked a lot of the people in the chain what their perception was of nvidia's awareness and uh so the professor at the chinese university of hong kong he had a great answer when i asked him do you think nvidia knows um and he kind of he paused for a second and then he said well how could they not you know like these things are very expensive you've got 30 plus thousand dollar gpus and it just seems like they would all be tracked um so what was the term there was a specific term as well for like kind of like basically equivalent of ignoring him yeah so the chinese is done egn b-e-g-n which means uh open one eye close one eye or turn a blind eye is the idea yeah and um that's awesome it's just very cool yeah it's super i mean the the coolest part about that was multiple people said that exact idiom and uh it it's i don't know it's just it's such a specific choice of words it'd be the same as if you asked like three people a question you know they all said oh they turn a blind eye at some point you're like okay this seems to be a real like consistent belief here uh but yeah i think from nvidia's standpoint it's whether or not they want to actually control what gets in it's hard to say certainly from a pure financial standpoint the more gps they sell the more money they make uh they probably don't really care who they sell them to as long as they sell them to someone and then where they end up after that i mean maybe to the extent that nvidia doesn't want to piss off the united states government they you know they try to comply as much as they reasonably can but how much do they actually try to control ingress into a country that's export controlled it's hard to say but certainly i think they are aware of this happening i just i have a really hard time believing that they are unaware their gps are making it into china when they shouldn't be and i imagine it must be quite hard to stop like i hate to have any sympathy for nvidia but it does it does feel like something that would be kind of a moving target because one thing that was consistent across the whole video was the ingenuity of the people involved it does make you see like american entrepreneurs sometimes and they're like oh yeah it's tough to you know the hours are very tough and you know i was coding all night and all of these guys were just like yeah i've got a thing in the back of my car full of wires yeah i've got i have a whole rig yeah it's great and that is i mean again you know from that particular uh side of things i i don't suspect i mean look it's a government regulation and if the government wants to regulate it it's kind of up to them obviously the companies need to comply with it but i wouldn't expect a company even nvidia to send in any kind of enforcement uh maybe what they would do is if they wanted to enforce it you know they might identify okay this purchaser uh there's evidence of this purchaser exporting to china anyway and so we're just going to stop selling to them or something but that's kind of i think the most you might expect of them um but yeah as far as the ingenuity it was pretty crazy like the guy in the u.s who buys the cards he um he's just got a prius with a massive like uh battery bank in the back like a ups with a lithium ion battery in it he's got a test bench hooked up to it an atx test bench pops the trunk open he's got a spare license plate in the trunk for some reason i don't know why uh that's not to ask that's not to ask yeah don't need to know and uh yeah and if you want to sell them your card you're just some american who found him on facebook marketplace uh he at the time we we were talking with him he was paying two thousand dollars flat he makes 300 when he sells it and you bring him the card meet him wherever he tests it and um in the back of the you know in the trunk of the car he just runs a benchmark make sure it's good and buys it ships it back or carries it back depending on how secure he feels and and then also to your point of ingenuity the shops that are capable of modifying cards where they're just they're repair shops and they just happen to be really good at board level bga or ball grid array device repair or swapping so they can pull memory modules they can add memory modules swap the gpu between pcbs and they're able to keep silicon in service where you know they're just a repair shop so it's kind of like from their perspective look they're not doing anything illegal in china they're just keeping boards in service but for people who need these high capacity gpus for ai tasks and they happen to be export controlled a shop like this would be capable of taking a card that has died uh you know through through use uh or just needs to be upfit to be better and and they can do that for pretty cheap and basically in a couple hours and it's not illegal to sell them in china once they are there right they've like that is not a crime like china is not prosecuting people for any of this correct the it is not illegal to own or sell these gpus or buy them uh in china it's illegal if you are an american company if you're nvidia or your best buy or a partner or whatever it would be illegal to sell the export controlled cards to a company or an entity or person in china uh but once it's there yeah there's no real control over it the only the only place that we found that china steps in is if there's some kind of undeclared ingress through port so like for example there were cpus and uh and gpus at various points in the last several years that were smuggled in with crates of live lobsters or prosthetic baby bumps.

29:41But was that real? Was the lobster thing real? The lobster thing was real, despite what NVIDIA said.

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32:50Hell yeah. Yeah, I love that. So actually, describe the full lobster situation. I think everyone will want to hear about the lobster. Yes, so the lobster situation, as it were, is basically there was a Hong Kong port, so customs intercepted a white van, I think it was. There's like a customs post. They post photos of the things that they are able to snipe. being brought in improperly. So Hong Kong's a free trade port, but there's still certain declarations you have to make. And sometimes people won't make those. And so there was a van bringing in crates of undeclared live lobsters driving on, I think it was the Macau or the Zhuhai Bridge or something.

33:42But anyway, they got intercepted. And alongside the live lobsters were GPUs. And they were older. I think they're quadros, but they're all being brought in improperly. And yeah, so Customs post the thing. They're like, we found this. And I think that's just kind of like the here's us doing our job and maybe scare people off or whatever. And then later, AI startup Anthropic released a statement talking about how there needed to be more strictly enforced export control in the US and they mentioned smuggling of GPUs with lobsters. NVIDIA responded, I don't have their statement in front of me right now, but it was something along the lines of it would be better if American AI companies would focus on innovation rather than the part I do remember was tell tall tales of uh prosthetic baby bump smuggling or gpu's sensitive electronics being smuggled with live lobsters it turns out that is not a tall tale that is a thing that happened so yeah this is the thing people say jensen huang is cool if you're cool you say yeah well our chips like we don't like this happening this is bad we're doing everything we can't stop it but yeah they're doing james bond shit to get our gpus like come on you could just say that like they do seem a little sensitive and we're we're recording this the day before their earnings and i got no idea what's going to happen no one does everyone's a bit everyone's a bit worried about it so it's i think it the china market is going to get extremely interesting because they've got the h20 ban but now the h20 ban has been lifted and now we're in this weird spot where i don't know if you've heard anything about this yourself where there are suggestions that the Chinese government is actively saying not to buy NVIDIA GPUs.

35:42Have you heard anything about that? Yes. So the Chinese government, I believe it's called the cyberspace, it might be a security agency or something like that. But one of their government agencies put out a statement following a separate statement from a state-owned or at least state-controlled in some capacity media report, where the statement said or at least floated the possibility that NVIDIA's H20s may have some form of spyware in them. And so the suggestions were tracking or government backdoors. And so that was kind of the accusation. NVIDIA, of course, posted a statement saying, absolutely not.

36:28This is not a thing. and you know just to be fair here there's not currently as far as we're aware of any firm evidence of this but i'm also sure that governments know things about you know about uh products from other nations that we would never know anyway so who knows but but that's where it stood nvidia said we don't have these china's agency said uh to companies in china that they should be wary of using h20s and advised against purchasing them for fear of some kind of backdoor or spyware so how realistic would it be for i actually did you hear any scuttlebutt around this of sit of switching to like huawei chips or something we did ask yeah i think we might have only kept one of those questions in the actual video but i did ask a lot of people um huawei from the users perspectives, the people we spoke to, none of the people we spoke to are using Huawei components right now.

37:32They're getting more powerful from what I understand. I think there's a few hurdles. One of them is the same reason where the companies aren't even really using AMD and they've been doing this for a while, whereas Huawei is pretty new. A lot of that comes down to Cuda where NVIDIA is the proprietor of CUDA, which is a library they can use to accelerate tasks in which a lot of software is written to use. I mean, even just rendering a video. It's like the coding language to get accelerate computing, right? Correct, yeah. Specifically on NVIDIA GPUs, though. Yes, it specifically works on NVIDIA and nothing else.

38:15And so AMD would have to use, I don't know, OpenCL or something else. depending on like for video encoding you'd maybe use opencl but uh that's the biggest limitation where a lot of the sort of so-called ai tasks are reliant on cuda to operate at any reasonable speed and so until there's a big push to move away from that it's nvidia gpus all the way down you know so and maybe the push is export control maybe the groups in china that need a higher volume of gpus then they're able to easily get eventually say okay let's just let's put all of our resources on trying to use opencl or use something other py torch or whatever so that may be the direction it goes yeah just feel it does actually feel like cuda is the the thing that needs to be broken here for better or for worse i'm just saying that there's a lot of talk about oh making more powerful chips here and there with amd or huawei but it feels like cuda really is the thing that they actually need to change and i guess the probably explaining to the markets what cuda is difficult enough but it feels that that if they could move past cuda that would be the actual thing that we're doing yeah it's kind of like the x86 situation where getting off of x86 and just for the the listeners what do you what do you mean by that yeah so your average computer is very likely an x86 computer which is a specific micro architecture that has to do with how software runs and interacts with the hardware and the other software on the system and uh so it's kind of like a prerequisite for you might have an application that requires windows to be compatible and this is another one of those types of foundational prerequisites okay x86 as opposed to, for example, ARM.