Nvidia’s ‘i’m Not Enron’ Memo Has People Asking A Lot Of Questions Already Answered By That Memo

Big encephalon hours

Christ. Fine. So complete nan weekend, a unusual Substack post from what appears to beryllium a CEO of a pet relocation company went very viral. This station — which to beryllium clear, is bullshit — alleges that Nvidia is engaged successful “may go nan largest accounting fraud successful exertion history.” That’s a load-bearing “may,” successful nan consciousness that there’s nary reliable logic to judge Nvidia is engaged successful fraud astatine all.

If and erstwhile nan AI bubble pops, everything that inflated it will person been evident nan full time

Apparently this spooked Nvidia, which — as first reported by Barron’s — has sent a statement to analysts clarifying that it is not, successful fact, Enron. That note, which The Verge has seen, addresses nan circumstantial allegations successful that Substack, arsenic good arsenic claims by famed short-seller Michael Burry that Nvidia’s accounting of stock-based compensation didn’t make sense. (According to Nvidia, Burry seems to person incorrectly added taxes connected restricted banal units to get his numbers.)

Now, naturally, this caught my attraction because I’ve precocious utilized Enron arsenic an affinity for what Nvidia is up to pinch the neocloud companies it funds:

“There is nary neocloud that exists without [Nvidia CEO] Jensen [Huang],” says Saari. That makes neoclouds, successful effect, extensions of Nvidia, he says. And nary of them make money, truthful to expand, they must return connected debt.

If we look astatine these arsenic being, metaphorically, Nvidia’s typical intent vehicles, past it doesn’t really matter if nan companies are immoderate bully aliases will past successful nan agelong term. Their occupation is to boost Nvidia’s sales. Even OpenAI, besides an Nvidia investment, benignant of falls into this class — because nan monolithic information halfway buildout that OpenAI wants nan authorities to backstop judge involves an atrocious batch of Nvidia chips.

If you are aged enough, aliases possessed of a definite benignant of disposition, you whitethorn beryllium thinking, Wait a minute, aren’t you describing Enron? And uh, successful immoderate sense, yes! Enron’s full point was special intent vehicles with highly speculative valuations that were utilized to return connected debt, Luria notes. But Enron lied astir what it was doing, and that’s fraud and illegal. (It besides sewage up to different forbidden worldly besides.) Nvidia’s narration pinch CoreWeave is each happening successful plain sight. So are each nan relationships pinch nan different neocloud companies. It benignant of seems for illustration nan tech institution type of the GameStop unfastened pump-and-dump.

“It’s not bully behavior, and it’s not patient behavior,” Luria says. “But it’s legal. Any investor tin spot this. Many are conscionable choosing not to.”

Since Nvidia has clarified, I’d for illustration to adhd a explanation of my own: The problem is that Nvidia’s behaviour is perfectly legal. In its note, Nvidia says it does not usage typical intent entities to hide indebtedness and inflate revenue. This is true! Every azygous neocloud Nvidia has invested successful is its ain company. Any indebtedness those companies whitethorn person are connected their ain equilibrium sheets. It’s not Nvidia’s debt. That’s 1 of nan reasons why neoclouds are truthful convenient for Nvidia — as nan institution itself informs analysts, Nvidia doesn’t power those companies, and doesn’t supply nan financing for them, either. They’re conscionable very convenient sin-eaters. In nan lawsuit of CoreWeave, Nvidia is propping it up by investing successful nan company, including to make judge its IPO really happened, and serving arsenic a customer.

CoreWeave’s CEO has moreover bragged astir nan adjacent relationship, saying, ““I’m not bashful astir reaching out” to Huang.

Personally, I deliberation accusing Nvidia of accounting fraud is efficaciously taking one’s oculus disconnected nan ball. It doesn’t person to perpetrate fraud to person a very cozy statement pinch a full web of companies that juice its net and whitethorn beryllium inflating an AI bubble — all while its ain executive waste shares to lock successful their position arsenic millionaires and billionaires. Nvidia has created 7 caller billionaires, successful fact!

If and erstwhile nan AI bubble pops, everything that inflated it will person been evident nan full time. (That’s very in keeping pinch nan times, isn’t it?) After all, I reported my CoreWeave communicative from nan company’s nationalist filings, pursuing its “Risk Factors” conception closely. Should nan AI bubble burst, thing that accelerated Nvidia’s maturation is apt to accelerate its losses; it will person to people down its investments successful nan companies it propped up, for instance. Should those companies spell under, that will mean a glut of Nvidia chips connected nan marketplace arsenic indebtedness holders effort to recoup their money, meaning Nvidia will efficaciously beryllium competing pinch its ain utilized merchandise astatine fire-sale prices. It’s each very stupid, but arsenic acold arsenic I tin tell, not really illegal.