Part One: NVIDIA Isn't Enron - So What Is It?

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3:07Better Offline Now at the end of November, NVIDIA put out an internal memo that tried to, well, get ahead of a few things. is how I'd put it, that had been bubbling up in the news, specifically comparisons to Enron, the massive energy trading giant that imploded in the early 2000s after, well, a lot of fraud, also with some other concerns about its earnings. Said memo was leaked to Barron's reporter Take Him, who is one of the largest Nvidia boosters in the known universe. He posts constantly about how Nvidia is going to be the biggest, most hugest company in the world. He's meant to be like an analyst and a reporter, but he mostly just seems like a cheerleader.

3:45And it's kind of embarrassing. Now, nevertheless, he was leaking a memo that was quite worrisome, so I don't know. NVIDIA chose to disseminate it through him, but also to short sellers. The actual providence of this, or is it providence? I don't know, but someone will correct me. It's kind of confusing. Anyway, long story short, people have a few concerns about NVIDIA, and well, you shouldn't though. You shouldn't have any concerns at all, because NVIDIA's very secret not-to-be-leaked immediately document, spent thousands of words very specifically explaining how NVIDIA was fine and most importantly, by the way, nothing like Enron.

4:23Now, why did I need to say all of this? And why did NVIDIA need to say all of this? Well, NVIDIA wrote this note as a response to both short-seller Michael Burry, famous of course from the Big Short, and Scion Capital. There's a whole bunch of other stuff there, but putting that aside. But also because of another thing, a guy called Shanaka Anselm Pereira, who wrote a piece called, and I quote, the algorithm that detected the$610 billion fraud, how machine intelligence exposed the AI industry's circular financing scheme. And I've now been sent this about 11 times, maybe more since it came out.

4:54Now, the reason I'm not going to link to Pereira's piece in the show notes or in the companion newsletter to this episode is simple. It's full of bullshit. And I've had some very good reporters link to this thing. I've heard from a lot of people say, oh, this scared me. And the fact that it scared NVIDIA really pissed me off too, because it's straight up got lies in it, like made up stuff. I'm not even talking just misstatements. I'm talking about really specific things it's made up. For example, in one part, Berera talks about major semiconductor distributor Arrow Electronics stating things in its Q3 2025 earnings about NVIDIA.

5:30Let me be fucking clear about this, This really pissed me off. Arrow makes no statements of any kind about NVIDIA on its earnings calls, in its 10Q, or its earnings presentation. You can go and look. He doesn't link to anything, by the way. And if you need another example, Barrera claims that when NVIDIA launched the Hopper H100 architecture in Q2 fiscal 2023, also amid reported supply constraints and strong demand, inventory declined 18 % quarter over quarter as the company fulfilled backlogged orders. If you bothered to go and look at NVIDIA's inventory from that period, which is public, by the way, you can see that inventory increased.

6:07Now, I'm not pissed off at anyone listening to this. I'm pissed off at any financial media that gave this any kind of attention. And I'm kind of pissed off at NVIDIA for doing it too. It's AI slop. And I've not heard of Pereira before, but his LinkedIn says he is, and I'm not shitting you, the CEO at Pet Express Sri Lanka. I would suggest getting your financial advice elsewhere and at a minimum making sure that you read outlets that actually source their data anyway as you're probably working out all of this is fine and normal this happens normally all the time companies do this all the time especially successful ones and there's nothing to be worried about here because after reading all seven pages of this document, we can all agree that NVIDIA is nothing like Enron.

6:53No, really though, NVIDIA is nothing like Enron. And it's kind of weird that anyone, especially you, by the way, is saying that Enron and NVIDIA have any similarities at all. They just put out a very long document, by the way, and it says they're not Enron. Why do you keep asking about Enron? All right. Why are you being weird? Okay. Well, now NVIDIA said something about Enron, But that's because fools and vagabonds keep suggesting that Nvidia was like Enron And very normally Nvidia has decided thousands of words at a time to set the record straight And I genuinely, no jokes, do agree Nvidia is nothing like Enron Putting aside how I might feel about the ethics or underlying economics of generative AI Nvidia is an incredibly successful business that has incredible profits Holds an effective monopoly on CUDA Which powers the underlying software layer to running software on GPUs Specifically generative AI and not really much else that has any kind of revenue potential.

7:50Now, I talked a bit about CUDA in The Hater's Guide to NVIDIA, which I've linked to in the show notes. And yes, while I believe that one day this will all be seen as one of the most egregious wastes of capital of all time, for the time being, Jensen Huang is potentially the greatest salesperson of all time. Nevertheless, people have somewhat run away with the idea that NVIDIA is Enron, in part because of the weird circular deals NVIDIA is built with NeoClouds, dedicated AI-focused cloud companies like CoreWeave, Lambda, and Nebius, who run data centers full of GPUs sold by NVIDIA, which they then use as collateral for loans to buy more GPUs from NVIDIA.

8:27I can see why people are a little concerned, but as dodgy and weird and unsustainable as this all is, it isn't illegal, and it certainly isn't Enron, because NVIDIA, as I've been trying to tell you, is nothing like Enron. Now, you may be a little confused. I get it. The NVIDIA is bringing up Enron at all. Nobody seriously thought that NVIDIA was like Enron. Not even the pseudonymous and analyst Just Dario, who has been questioning its accounting practices for years, because Enron was genuinely one of the largest criminal enterprises in history. And NVIDIA is, at worst, I believe, a bit dodgy and doing whatever it can to survive through various forms of accountancy alchemy.

9:09wait wait you still think nvidia is enron what's it going to take to convince you i just told you that nvidia isn't enron nvidia itself has explained at length as i'll explain by the way it's not enron and i'm not sure why you keep bringing up enron all the time stop being an asshole enron and nvidia are nothing alike look look nvidia's own memo said that and i quote nvidia does not resemble historical accounting frauds because nvidia's underlying business is economically sound its reporting is complete and transparent and it cares about its reputation for integrity now i know what you're thinking why is the largest company on the stock market having to reassure us about its underlying business economics and reporting one might immediately begin to think streisand effect style that there there might be something up with nvidia's underlying business but Nevertheless, you know what?

10:02Fuck it. NVIDIA, grab your coat. We're going out. Let's forget how all of this ever happened. Wait, what? What was that? First, unlike Enron, NVIDIA does not use special purpose entities to hide debt and inflate revenue. NVIDIA has one guarantee for which the maximum exposure is disclosed in Note 9 of$860 million and is mitigated by$470 million in escrow. The fair value of the guarantee is accrued and disclosed as having an insignificant value. NVIDIA neither controls nor provides most of the financing for the companies in which NVIDIA invests. Oh, okay. I wasn't really thinking about all of that.

10:41I was literally just, I was just saying how you were nothing like Enron. We're good. Come on, let's go. Let's - Second, the article claims that NVIDIA resembles WorldCom, but provides no support for the analogy. WorldCom overstated earnings by capitalizing operating expenses as capital expenditures. We are not aware of any claims that NVIDIA has improperly capitalized operating expenses. Several commentators allege that customers have overstated earnings by extending GPU depreciation schedules beyond economic useful life. Rebutting this claim, some companies have increased useful life estimates to reflect the fact that GPUs remain useful and profitable for longer than originally anticipated, in many cases for six years or more.

11:25We provide additional context on the depreciation topic below.

11:33Okay, I mean, I wasn't even thinking about WorldCom. I wasn't thinking about WorldCom at all. I genuinely hadn't thought about WorldCom in a while. You're nothing like them. Listeners, for context, WorldCom was a telecommunications company that collapsed in the early 2000s, in part because it had a tendency of overstating its earnings by billions and billions of dollars, in total$11 billion. This followed a failed merger with Sprint, which was blocked for antitrust reasons, essentially forcing the company to grow its stock through customers rather than mergers. You know, normal way, kind of. The telecom sector was pretty saturated back then, making this a pretty tall ask, and so we ended up with a bunch of dodgy accounting, which all fell apart when the company filed for bankruptcy.

12:20NVIDIA, you're not doing anything Worldcommy, are you? Why are you bringing up Worldcom?

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15:04To be clear, by the way, Wellcom was doing capital F fraud and its CEO Bernie Ebers went to prison after an internal team of auditors led by WorldCom VP of Eternal Auditing, Cynthia Cooper, reported$3.8 billion in misallocated expenses and phony accounting entries. That is just straight up fraud. So, okay, look, Nvidia, you are really specific about saying you didn't capitalize operating expenses as capital expenditures. You're not doing that. That's great. Great stuff. I literally never thought you'd done that before. I genuinely agree. You're nothing like WorldCom. NVIDIA, nothing like WorldCom.

15:44Anyway, glad to hear about the depreciation stuff. Looking forward to hearing more about - Third, unlike Lucent, NVIDIA does not rely on vendor financing arrangements to grow revenue. In typical vendor financing arrangements, customers pay for products over years. NVIDIA's DSO was 53 in Q3. NVIDIA discloses our standard payment terms with payment generally due shortly after delivery of products. We do not disclose any vendor financing arrangements. Our customers are subject to strict credit evaluation to ensure collectability. NVIDIA would disclose any receivable longer than one year in long-term other assets.

16:24The$623 million other balance as of Q3 does not include extended receivables. Even if it did, the amount would be immaterial to revenue. Um, alright, alright, man. If anyone asks whether you will like fame.com crash out Lucent Technologies, I'll be sure to correct them. Oh god, I'm going to have to explain another business that failed around the millennium right now, aren't I? After all, Lucent's situation was really different. Well, Well, sort of. Lucent was a giant telecommunications company, one that was, for a time, extremely successful. Really, really successful, in fact, turned around by the now infamous Carly Fiorina.

17:08Fiorina, who joined Lucent from AT &T, had a strong start, and in her first few years at the company before she left to join HP, Lucent saw revenues grow by 58 % to$38 billion, and net income grow from a small loss to a 4.8 billion dollar profit nvidia this all sounds great why wouldn't you want to be compared to oh oh yeah yeah sorry you see in 1997 fiorina took over the group responsible for selling gear to telecoms providers and within one year that business unit grew by just shy of a quarter in two years it jumped from 15.7 billion dollars when fiorina took over to 23.6 billion in 1999. Lucent did this by lending money to its customers with its loans appearing on its balance sheets as, quoting CNN here, an allegedly sold asset.

17:58Now, Lucent was classifying debt as an asset and did something called vendor financing, which means you lend somebody money to buy something from you. It turns out Lucent did a lot of this. And in a very simple away, this is like giving someone a$10 loan to buy$10 of bricks from you. It's just handing the same$10 back and no one's really doing well here. Look, these loans were also very generous with telcos, small fledgling telecommunications companies with minimal assets and revenue, by the way, and often mountains of high interest there, often paying nothing up front. The loans themselves were often bigger than the company itself and far beyond what the company could hope to repay.

18:42Okay, NVIDIA, look, we're friends, okay? I hate to say this, but I kind of get why somebody might say you're doing Lucent stuff. After all, rumor has it that in your supposed deal with OpenAI, a company that burns billions of dollars a year, will maybe involve leasing your GPUs to them, which sure sounds like you're doing vendor finance. We do not disclose any vendor financing arrangements. Oh, all right. Okay. You're not disclosing any vendor financing arrangements. Okay. I got it, man. Anyway, back to Lucent. Lucent really did fuck up big time, though, indulging in the dark art of circular vendor financing, the likes of which NVIDIA has not, kind of.

19:25In 1998, it signed its largest deal, a$2 billion deal, an equipment and finance agreement with telecommunications company Winstar, which promised to bring, I shit you not, $100 million in new business over the next five years and build a giant wireless broadband network along with expanding Winstar's optical networking. I quote the Wall Street Journal. Winstar was one of the scores of standalone startup companies created in the late 1990s to compete in the market for local telecom services. These firms, known as competitive local exchange carriers or CLICs, raised billions of dollars in debt and equity financing and embarked upon ambitious plans to compete with incumbent carriers.

20:03For a time in the late 90s, Their stocks were hot properties, outpacing even internet stocks. In December 1999, Wired would say that Winstar's small white dish antennas heralded a new era and new mindset in telecommunications and included this awesome quote about Lucent from CEO and founder Will Ruhanna. On one level, we are a customer and they are a supplier. On another level, they are a financier and we are a borrower. On yet another level, they are providing services around the world to accelerate our development. They also want to use our service and have guaranteed$100 million in business.

20:37Hell yeah. I also love this because you can read this or hear this or what have you and go and read current magazines talking about these companies and see them do the same things. Just look. Oh my God. There's actually another great quote I want to share with you. Winstar is a publicly traded company and has more than 4 ,000 employees and reports more than$300 million in annual high score revenues. We love annualized revenues, don't we, folks? We love them. Just do month times to hour, you get the biggest numbers we've ever seen. They're beautiful. We love them. A company making about$25 million a month,$25 million a month in revenue, signed a$2 billion loan,$2 billion in financing for business that would make them$100 million across five years.

21:32They aren't teaching this in business school, do they? Weirdly, Winstar's Wikipedia page says that revenues were$445.6 million for the year ending in 1999, around$37.1 million a month. These numbers don't line up so good and probably because Winstar was kind of crooked. Now, Winstar, they loved raising money. Two years later in November 2000, it would raise$1.02 billion, for example, and it raised a remarkable$5.6 billion between February 1999 and July 2001, according to the Wall Street Journal. $900 million of that came in December 1999 for an investment from a bunch of investors, including, of course, Microsoft, with analyst Greg Miller of Jeffries & Co.

22:14saying, the Microsoft investment is a significant endorsement that the technology will be used more aggressively in the future. Winstar can use the capital. They sure fucking can, can't they? Now, another fun thing happened in November 2002. Lucent would admit it overstated its fourth quarter profits by improperly recording$125 million in sales, reducing that quarter's revenue from profitable to break even. Things would eventually collapse when Winstar couldn't pay its debts, filing for Chapter 11 bankruptcy protection on April 18th, 2001, after failing to pay$75 million in interest payments to Lucent, which had cut access to the remaining$400 million, not$400,$400 million of its$1 billion loan to Winstar as a result.

22:58Winstar would file a$10 billion lawsuit in bankruptcy court in Delaware the very same day, claiming that Lucent breached its contract and forced Winstar into bankruptcy by, well, not offering to give it more money that it would not pay off. Elsewhere, things have begun to unravel for Lucent. A January 2001 story from the New York Times told the strange story of Lucent, a company that made over$33 billion in revenue in its previous fiscal year, asking to defer the final tranche of payment,$20 million, for an acquisition due to, and I quote, accounting and financial reporting considerations. Now, why would they do that?

23:33Well, Lucent needed to keep that money on the books to boost its earnings as its stock was in the toilet, and was about to announce it was laying off 10 ,000 people and a quarterly loss of over a billion dollars. Over the course of the next few years, Lucent would sell off various entities, and by the end of September 2005, it would have 30 ,500 staff and a stock price of$2.99, down from a high of$75 a share at the edge of 1999 and 157 ,000 employees. According to VC Thomas Tungus, and that is his name, Lucent had$8.1 billion of vendor financing deals at its height. Lucent was still a real company selling real things, but it had massively overextended itself in an attempt to meet demand that didn't really exist, and when Lucent realized that, it decided to create demand itself to please the markets.

24:22To quote MIT Tech Review and author Lisa Endlich, it believed that setting and meeting the expectations of Wall Street subsumed all other goals, and that Lucent had little choice but to ride the wave. To be clear, NVIDIA is quite different from Lucent. It has plenty of money, and the circular deals it does with CoreWeave and Lambda don't involve the same levels of risk. NVIDIA is not, to my knowledge, backstopping CoreWeave's business or providing it with loans, though NVIDIA had agreed to buy$6.3 billion of computers, the buyer of last resort of any unsold capacity, and did mention an unnamed partner it had agreed to backstop the leases of in its most recent earnings.

25:00Nevertheless, NVIDIA can afford this, and it isn't illegal, though it is obviously propping up a company with flagging demand. NVIDIA doesn't appear to be taking on masses of debt to fund its empire either, with over$56 billion in cash on hand and a mere$8.4 billion in long-term debt. Okay, we got through this, man. NVIDIA is nothing like Lucent either. Okay, maybe there are some similarities, but it's different. No worries at all. I know I'm chill, I'm relaxed, and I'm most importantly normal. You still seem nervous, NVIDIA. I promise you, if anyone asks me if you're like Lucent, I'll tell them you're not.