The critiques of 'circular funding' don't really make sense to me. If you invest 20 billion and you get back 20 billion, your profit is the same. Sure your revenues look higher but investors have access to all that information and should be taking that into account, just like all the other financial data.
Michael Burry is betting against AI growth translating into real profits as a whole, not the circular funding.
The problem is that stocks are often valued and traded on revenue growth, not profit[0] So circular funding generates stock price bumps when, as you said, there's no inherent value underneath. Creates a recipe for a crash.
[0] consider pagerduty, incredibly profitable with little revenue growth. Trading at 1.5X revenue, where high revenue growth, unprofitable companies are trading at 10X revenue.
I feel like it's almost more of a Popular stock thing. Consider if pagerduty eked out an empty deal with any one of the "Pop stocks" that had little impact on their real profitability. Would stock trade differently or better? It feels like it really would in the modern market. Like even if the numbers weren't a big change, the buzz would be.
Nvidia is buying customers that will likely have increasing need for Nvidia. Those investment dollars will be spent on Nvidia. Future dollars will be spent on Nvidia.
Second order effects are that everyone serviced by AI today will need even more AI tomorrow. Nvidia is there for that. They're increasing AI proliferation.
By increasing the number of engineers, dollars, watts spent on GPU, Nvidia grows its market.
The added benefit here is that Nvidia gets to share in the upside if any of these companies succeed in their goals.
It's as if Microsoft had Azure back before the doctom boom and took investments in Google, Amazon, and Facebook in exchange for hosting them. (And maybe a few misfires, like WebVan.)
Why? Wash trading is about selling and then requiring the same asset for tax purposes. How is this analogous, other than that you presumably dislike both practices?
In crypto, wash trading usually refers to the practice of exchanges or project creators colluding to trade the same asset back and forth in order to make the volume/liquidity/popularity look greater than it is.
- "Our coin hit $100M daily volume, get on this rocketship before it's too late!"
- "Our exchange does $1B annually, so you know we're trustworthy!"
- "Hey investors, look at the massive demand for our GPUs (driven by the company we invested $100B)!"
Yes, when NVIDIA gives assets to a third party in return for a stake in the company, and then that company uses those assets to secure loans, and those loans are predicated on the value of that asset, thats a single asset being claimed by multiple parties who will all write in their books the value of that asset.
Its generating the facade of activity, the same.
You are right theres no public ledger for the wash trading, but the fact that the underlying real physical asset is NVIDIAs product, lends the same intentional activity: to leverage apparent markeet activity to inflate the value of assets.
Both are taken into account. Potential profitability is taken into account with growth companies. Circular funding has no effect on that. With unprofitable companies case is made on how risky the company is and what the potential profit will be in the future.
I would disagree, at least in the short term. Exhibit A: AMD's stock rose 36% at the announcement of their OpenAI circular deal. If 1+1 = 3 and there is potential profit to be gleaned from such a deal, then it isn't circular, and is just plain good business. But the fact that AMD's stock collapsed back to where it was shortly after suggests otherwise
This isn't to do with this being circular. It is moreso that AMD is thought to be falling behind in AI race, but OpenAI doing a deal with them is a strong indicator that they might have potential to come back.
The deal allows OpenAI to purchase up to 6GW of AMD GPUs, while AMD grants OpenAI warrants for up to 10% equity tied to performance milestones, creating a closed-loop of compute, equity, and potential self-funding hardware purchases. Circular.
From the announcement per se, AMD's stock rose to a level that effectively canceled out whatever liabilities they were committing to as part of the deal, so it was all gravy, despite it being a press release
Why is that generous? This is clearly showing OpenAI's belief in AMD, which in turn would give investors a large amount of confidence. A lot of that market cap came from Nvidia, which lost around 50B that day while AMD gained 70B in market cap. It all makes sense to me.
Where do you see the 70B being erased? But in any case it is also plausible that a confidence changes given new stream of constant information, so I don't see how it would be problematic if it did lose given new information.
Burrys critique is that the Nvidia funding deals have them investing money in a company and getting both stock in that company and their own money back to buy the chips. They then book the chip sales in revenue but they don’t show the investment as a cost, since investments are treated separately from an accounting perspective. So it looks like they’re growing revenue organically at no cost, while that doesn’t seem logically consistent with what’s actually happening.
The truth is you can't properly account for these transactions. If they are making legitimate equity investments (ie, that an independent investor would reasonably make) it's all fine. If they are investments that don't hold water, it's fraud.
It's not that different to any type of vendor financing. Vendor financing is legit, if done legitimately.
Burry's critique is even more general than that when it comes to tech companies doing accounting fraud. It's his argument as to why "the market doesn't make sense" and his bets have failed -- which is why I'm not sure anyone would summarize it as "betting against AI growth translating into real profits as a whole"
It's worse than that. One side of the "circle" is 40 billion, the other side is 300. Why not just subtract it, and say 260 billion is going one way.
The real story is that Nvidia is accepting equity in their customers as a payment for their hardware. "What, you don't have cash to buy our chips? That's OK, you can pay by giving us 10% of everything you earn in perpetuity."
This has happened before, let's call it the "selling the goose that lays golden eggs scan." You can buy our machine that converts electricity into cash, but we will only take preorders, after all it is such a good deal. Then, after bulding the machines with the said preorder money, they of course plugged the machines in themselves instead of shipping them, claiming various "delays" in production. Here I'm talking about the bitcoin mining hardware when the said hardware first appeared.
Nvidia is doing similar thing, just instead of doing it 100% themselves, they are 10% in by acquiring the equity in their customers.
> Here I'm talking about the bitcoin mining hardware when the said hardware first appeared.
even better, we take preorders, while we delay for 1 year, we run the ASICs ourselves with way outsized TH/s power compared to the world. Once we develop the next one, we release the 'new' one to the public with 1/10th of the power.
I've run into this before in other industries as well. Sports franchises are notorious where they expect any company doing work for the franchise to then spend some of that money earned back with the franchise in forms of buying advertising, suites, etc to the point that very little money if any is made by the vendor.
It's certainly a problem when circular investment structures are used to get around legal limits on the amount of leverage or fractional reserve, or to dodge taxes from bringing offshore funds onshore.
Plenty of sneaky ways of using different accounting years offshore to push taxes forward indefinitely too, since the profit is never present at the year end.
If you invest $100B and get back $40B in sales, you're investing $60B of money and $40B of your products. This is simple stuff. The question is whether or not it is a good investment. Probably not.
Just invest 20 billion, get 20 billion back on its own isn't inherently a problem. The issue is it may inflate the figures and valuation for NVIDIA such that it collapses when the boom ends. If their sales rely on handing loss making companies like OpenAI money to buy their products then that may fall apart if things turn. Cisco did similar in the dotcom boom and bust. On the other hand if OpenAI doesn't collapse then the investment goes up and everyone wins. It's kind of a gamble on that sort of thing.
There's a lot of "shoulds" that go out the window when you're basically in a hype cycle. We're high stakes rolling at this point. It's a matter of when the house goes broke.
>Michael Burry is betting against AI growth translating into real profits as a whole, not the circular funding.
You are right, Michael Burry is betting against AI growth being underwhelming. But if he convinces other investors that AI is bad as a general investment, for whatever reasons (like the "circular economy" meme), then he stands to make a nice profit sooner. What's not to like?
No. Your revenue increased by 20bn and your profit increased by (for arguments sake) 5bn. You also have 20bn of investments that you then need to value.
Is that bad? Depends. Did the purchase of chips make sense. Would they have done that if someone else say an independent entity invested?
OK, but what will they do next quarter? Loan out another 20 billion and get it back? And the quarter after that? Eventually you run out of people will to take loans from you to buy your chips and what do you think happens then?
this isn't an investing site but Coreweave is what I watch. All those freaking datacenters have to get built, come online, and work for all the promises to come true. Coreweave is already in a bit of a picklye, I feel like they are the first domino.
/not an investing/finance/anything to do with money expert.
Yeah, I saw this critique show up a few months ago and now I'm seeing it everywhere, even in major financial news sites like Bloomberg.[0] It's certainly worth discussing, but people are taking it as a gotcha to prove the AI boom is fake. However, all the AI companies have to buy from Nvidia anyway. And Nvidia has tons of cash, in fact it has 4x the cash on hand now than it did in 2023, despite all the investments.[1] So yes, if they think the AI market will grow then of course they will buy into it. If all of Nvidia's deals went bad, their stock would plummet, but not because they lost a few tens of billions, rather because that would mean the AI market is going down in general. There is a great counterexample to the "AI is propped up by circular funding" argument in Google, which uses its own TPUs and builds its own AI, and integrates it into it's own end-user products, no circular deals needed. If AI is propped up by anything it is investors and companies thinking it will give them a huge return. Circular deals are a result of that: cash is going everywhere into that market, it's that simple. The AI boom may be a bubble, but not due to circular deals in particular.
Just because it's legal and in the open doesn't mean it's sound or not creating perverse incentives. Investors that "should be taking that into account" probably are, and hoping that they come out on top when the bubble bursts. That means pain for many people. Those are very valid reasons to point the finger and criticize.
0% NET accretive profit - the OP was saying that the invest/return wash doesn't affect prior profitability, just revenue. Obviously, the new profitability inclusive of the new revenue will actually by lower because of the zero margin wash trade.
But you haven't made any money either. That's what "profit" means.
Also, "the asset" here means stocks of a company that is losing billions dollars per year. OpenAI has no clear path to become profitable, especially given the fact that Google has just leaprfroged them with their Gemini 3 model.
to me bigger problem emerges if you assume all those companies in the 'circular financing infographic' as one conglomerate. then essentially all you are left with is real demand for AI & I just dont really see much of it besides Hype and FOMO. that falls away the moment CFOs get 'permission' to ignore the AI growth story. besides that I only see coding bot and openAI's consumer subscription business. I dont see that becoming $1T business anytime soon. so what gives? I think Burry is right but I am not sure of timing because they just need one funder to extend and pretend for a few more quarters & DJT can do it under guise of datacenter jobs etc.
Circular thing is bad too but from a different angle, Imagine if the whole TPU vs GPU thing erodes Nvidia's moat and its profit margins compress. if that happens how long it can keep feeding the same unproductive 'pets.AI' type startups? one break in the narrative and tragedy of commons strikes. will it happen soon? anybody's guess but given Trump is at helm and there is going to be new Fed chief, I doubt it would be anywhere near soon. Definitely not before mid-terms are locked in.
I'm not sold on the circular funding argument either, though it certainly wouldn't surprise me if it (or some other form of corruption/collusion) turned out to be true to some extent. Personally, I firmly believe that Silicon Valley jumped-the-gun early on AI investment for fear of being left behind and over-estimating the potential of LLM-based AI (at least in the short term), and now are stuck in the awkward position of not being able to admit it without shaking investor confidence which they don't want to do as they still need significant more investment to mature the tech to a point that it starts paying significant returns with respect to the investment.
> Michael Burry is betting against AI growth translating into real profits as a whole, not the circular funding.
It's not even so much that he's betting against that translating into profits, but rather that the pace of infrastructure investments is too out of sync with the timeline of realizing those profits, and also that throwing money at the problem doesn't necessarily move that break-even ROI timetable forward in a sustainable way (beyond a certain point).
That's what popped the DotCom bubble. It was the fundamental fallacy that potential profits and revenues were directly proportional to and/or dependent on investment, and even more specifically that more investment would realize not just greater returns, but the belief that more investment yielded greater return sooner which just wasn't true - at least not beyond a certain point. So while many people associate the Pets.com flop with the dotcom bubble, it was actually over investment in and by Cisco (chiefly, but not solely) that really precipitated the bubble bursting.
A lot of people see lots of parallels with the AI bubble in that context. If the ROI timeframe is greater than the viable lifecycle of hardware bought today, how wise is it to spend big today? Does it accelerate the timeframe if you spend more, and if so by how much, and up to what point? There's also something to be said about market momentum and strategic positioning, but that's hard to quantify, especially in the context of forecasting how impactful it will be on realizing your ROI at some indefinite point in the future.
Carrying cash isn't a crime. The fact that no charges were brought says that they couldn't prove a crime was committed either. And please read the fifth amendment.
> No criminal charges were ultimately brought against Gutierrez Lugo
No but carrying over $10,000 into the US requires you to declare it and maybe pay taxes if you can't prove its source or risk being sized (which is fine if it's drug money).
Not only that, but the notion that GPT-5 will answer those questions with only 2% accuracy seems suspect. Those are exactly the kinds of questions that current models are great at.
The percentages are added, not averaged. Each category sums to 10%, and the General Knowledge category has 5 equally-weighted subcategories, so 2% is the best possible score you can get in the social science subcategory.
I don't know why they decided to do it this way. It's very confusing.
why are there no pictures of the backseat? tired of cars with four doors and backseats made exclusively for children. and they say it can fit 8 people???
You can go on YouTuber and find reviews of the car and most people seem to say the backseat is fairly roomy (the one 6'5" reviewer said he fit). I put a reservation down a few months ago and at 6' (1.9 m for the sane people), I'm really banking on that one off-hand comment.
The third row is just planned. They do not have any publicly available views of it, and the currently non-removable back glass of the prototypes inhibit actually installing and using them.
The entire concept of "official act" does not actually exist. It wasn't defined in the Constitution, and neither was it defined by the Supreme Court when they invented it from whole cloth.
Not for at least 10 years because government is propping up house prices with their holdings of MBS, although market has definitely softened in some places.
Are they even profitable in SF or LA? I don't disagree with you, but if being profitable means charging more than Uber/Lyft and having slower trips on average than a human, thats not gonna work out too well. And these are the highest CoL cities in the us, meaning that if its not profitable there, might not be profitable anywhere.
Why do you think the trips are slower than a human? I've only taken one Waymo trip (and my wife two) but in each case it didn't feel any slower than a Lyft. But it felt a lot safer! They definitely drive better than any human Lyft driver I've ever had.
And the prices seems to roughly match Uber/Lyft. Sometimes they're higher sometimes lower. The one ride I took I chose the more expensive Waymo just for the better experience. You don't have to worry about what the driver might say or do that makes you uncomfortable or unsafe.
Their wait times tend to be worse, but that's getting better too. The trip speed has also noticeably improved. I've taken about 50 over the past 2 years.
Even if they're sometimes slower in pickup or trip time, on average, I greatly value the consistency of the experience over everything else.
Waymos are terrible at taking unprotected left turns into bumper to bumper traffic during peak hour.
They aren't aggressive like a normal driver when traffic is stopped and there's a clear but small gap that would result in the car being at an angle crossing traffic.
The lidar can't see any gap between cars when trying to turn into a more distant lane, so any obstruction to a close lane due to traffic kills them.
Source: been stuck in and observed Waymo in this situation for 10+ minutes several times.
A human driver is willing to make the turn much sooner.
Don't take a Waymo if you're in a hurry and the route will have such a left turns.
They seem to be getting more proactive in general. I was surprised last night when the one I was in went full barrel through a light that was already yellow and turned red while we were still in the intersection.
Ha, I had the exact same experience on a Waymo last night.
The light had just turned yellow before we entered the intersection, and I was sure it would slam the brakes (there was no one behind, so no risk of being read-ended). Yet it accelerated and cleared the intersection as the light turned red. It was what any reasonably good driver would do, but certainly edgy for a 100% law-abiding robot.
I’ll definitely take that over the Lyft driver I once had who went through a red light 1-2 seconds after it turned red. Not that that’s typical for ride share drivers in my area, but still.
Last Thursday. I called support after 10 minutes to cancel the ride but the car started moving while I was on the call.
That particular one was a traffic light green light with a "do not queue over intersection" area specifically designed to allow cars in my lane to turn onto the main road. The Waymo can't see that there's a gap in the lane it wanted to turn into, and was too conservative about queuing over the intersection at an angle when the light was green like any human would do.
I should first note that I'm a big fan of waymo and want autonomous to succeed generally.
I take both waymo's and lyft/uber all the time in sf and waymo's are way slower. I'd estimate it at 10-15% slower. Once the novelty of a waymo wears off you realize that they drive like a high anxiety teenager and going 15 mph on a 15 mph road, coming to gentle full stop at every stop sign, and being very tentative on turns and passing people all add up to a very slow ride.
The calmness is a major selling point for me, personally. Beyond just the safety aspect, I can't count how many times I've gotten nauseous from Uber and taxi drivers swerving and accelerating/stopping abruptly, often for no actual speed gain.
Cars of all kinds, really. But It seems to be more common in either crappy old gas cars or Teslas. I know Teslas have weird brake settings, but every ride I've experienced this has definitely been from aggressive and reckless driving.
Kidding but not kidding. Easily half my Uber rides have been legit scary. Yellow cabs only slightly better.
How does Waymo do for cleanliness and odor? That would be another selling point vs regular Uber/Lyft and many yellow cabs. These days they all seem to douse the interior with cheap cologne.
I stopped using Lyft after two close calls with drivers who must have faked their papers. One Lyft drive ran a red light into a postal truck at an otherwise empty intersection causing the front to fall off, like that Australian ship: https://www.youtube.com/watch?v=3m5qxZm_JqM
Stopping at a stop sign isn't just stopping at a stop sign. The way you pull up to it conveys a rough picture of your intentions to other drivers, or at least the ones that are on the ball. Good drivers actively time their arrival to avoid potential confusion with other traffic.
The sad truth about Waymo is that they have to aim for a 0 (or extremely close to 0) accident rate for PR/regulatory reasons, especially so for accidents caused by Waymo, and that's always going to heavily influence the way they drive.
Uber drivers cause accidents sometimes, just like all drivers do. Whenever this happens, we generally blame the driver and not Uber. It's a completely unremarkable event that the media will not pick up on, because everybody knows that car accidents are just a fact of life.
If a Waymo causes just one fatal accident, people will be up in arms and demand a ban on self driving. That means they have to be extremely conservative in how they drive, especially as more and more of them appear and the probability of one causing an accident goes up due to simple statistics.
There is a simpler explanation: every Waymo vehicle is effectively the same. If one makes a mistake, every vehicle will likely keep making the same mistake over and over again, until it's fixed. If the mistake causes harm, there is often a clear causal link from a flaw in the system to the harm, which can be a pretty good incentive to fix it.
Human drivers are all different. They also learn from their mistakes and change unpredictably over time. Humans can get away with all kinds of unsafe behavior, because bad outcomes are unlikely in any particular situation. If something bad happens, it could easily be a one-off issue. And even with systemic issues, it's easier to change the environment / regulations / vehicles than the drivers.
That's a product decision, though. They want people to feel safe, and to build a sustained record for being safe. They could easily hit the pedal if they wanted to.
"Lawful to a fault teenager" is not what people want in a taxi driver. That type of chauffeur doesn't make people feel safe. It makes them on edge. But unfortunately that's the kind of AI chauffeur regulators want.
I agree it's the "right" way to do it from a PR perspective though.
Having more people drive like Waymo would likely result in faster travel times for all. It’s a well studied phenomenon. In cities the intersections are a bottleneck and driving at slower average speed often means stopping less often.
Also, don’t you think it’s weird that you complain that the car goes 15 on a road with speed limit equal to 15?
I'd rather do that than fear for my life when an uber driver decides that the 65mph speed limit should be understood as 85mph. Waymo doesn't even get on the freeway.
Operational profits is not really a goal for Waymo in near term. The current goal is to be many years ahead of competition, getting permits to operate in major profitable cities with profitable routes.
The cost of a Waymo car right now is around $150K. Soon, Waymo will build its own cars (with partnership with some car manufacturer) from scratch which will bring this cost to around $40K.
currently WayMo has around 2 people per car employed in service roles which will be like 2 people per 50 cars. At that point they will be swimming in profits.
> The current goal is to be many years ahead of competition
The problem with this is that one of their competitors (Tesla) now has very powerful friends in the government which are certainly not above using that power in their favor...
I'm pretty certain they won't undercut Uber or other taxi services any time soon because they don't want to provoke the political headache that comes with it. That type of politics could shutdown their licenses, I'm sure they want to avoid that at all costs so they're pricing above existing services.
What they may do is refuse to raise prices and eventually inflation will make them the cheapest.
They can charge more in Melbourne and I'll happily pay it to avoid drivers that cancel the trip after accepting or accept the trip and drive away from me until I cancel.
They're already the cheapest if they match prices because there is no tip required. In the long run they'll inevitably be cheaper because of higher utilization of their vehicles and (vastly) lower labor costs.
This is a misunderstanding of the economics of taxi firms. Taxi companies don't pay for purchase or depreciation of their cars (the drivers do), but Waymo does.
There are no drivers with Waymo. Believe it or not, a living annual wage for a person (or close to it) is vastly more expensive than the annual maintenance and depreciation on even a very expensive vehicle.
They're probably within reasonable distance of gross profit, and much farther from net profit because of the imbalance between their current fleet size and the massive ongoing manufacturing and R&D costs. The organizational goal is not immediate net profits though.
Take this with the grain of salt it deserves. No one relying solely on publicly available information can give you anything more than highly speculative guesses.
fiber isn’t ’obliterated’ in a blender, it’s only removed with juices. in juice you strain all the pulp and seeds out, smoothies retain the seeds and fiber.
Michael Burry is betting against AI growth translating into real profits as a whole, not the circular funding.
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