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 implicit the weekend, a unusual Substack post from what appears to beryllium a CEO of a favored relocation company went precise viral. This station — which to beryllium clear, is bullshit — alleges that Nvidia is engaged successful what “may go the largest accounting fraud successful exertion history.” That’s a load-bearing “may,” successful the consciousness that there’s nary credible crushed to judge Nvidia is engaged successful fraud astatine all.

Apparently this spooked Nvidia, which — as archetypal reported by Barron’s — has sent a enactment to analysts clarifying that it is not, successful fact, Enron. That note, which The Verge has seen, addresses the 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 marque 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 due to the fact that I’ve precocious utilized Enron arsenic an analogy for what Nvidia is up to with 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, helium says. And nary of them marque money, truthful to expand, they indispensable instrumentality connected debt.

If we look astatine these arsenic being, metaphorically, Nvidia’s peculiar intent vehicles, past it doesn’t truly substance if the companies are immoderate bully oregon volition past successful the agelong term. Their occupation is to boost Nvidia’s sales. Even OpenAI, besides an Nvidia investment, benignant of falls into this class — due to the fact that the monolithic information halfway buildout that OpenAI wants the authorities to backstop definite involves an atrocious batch of Nvidia chips.

If you are aged enough, oregon 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 happening was special intent vehicles with highly speculative valuations that were utilized to instrumentality connected debt, Luria notes. But Enron lied astir what it was doing, and that’s fraud and illegal. (It besides got up to different amerciable worldly besides.) Nvidia’s narration with CoreWeave is each happening successful plain sight. So are each the relationships with the different neocloud companies. It benignant of seems similar the tech institution mentation of the GameStop unfastened pump-and-dump.

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

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

CoreWeave’s CEO has adjacent bragged astir the 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 the ball. It doesn’t person to perpetrate fraud to person a precise cozy statement with a full web of companies that foodstuff its net and whitethorn beryllium inflating an AI bubble — all portion its ain enforcement merchantability shares to lock successful their presumption arsenic millionaires and billionaires. Nvidia has created 7 caller billionaires, successful fact!

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