There’s $1.8 trillion in AI-related debt off the balance sheets vs $1.4 trillion on.
Big Tech AI Spree Revives Accounting Devices That Toppled Enron
Bloomberg comments Big Tech AI Spree Revives Accounting Devices That Toppled Enron
Enron Corp. exploited US accounting rules to hide from investors and lenders hundreds of millions in debt it had bundled into off-balance sheet entities — obligations that contributed to one of the biggest corporate collapses in US history.
Twenty-five years later, new risks have emerged as some of the world’s most valuable companies create similar financing vehicles that can mask how much debt they’re taking on, as the technology industry looks to spend more than $3 trillion to power artificial intelligence systems.
Alphabet Inc. and Meta Platforms Inc. each have turned to vehicles known as variable interest entities (VIEs) as part of the financing mix needed to construct data centers and related energy infrastructure.
Meta, the parent of Facebook, last year formed a joint venture, a VIE, to build a Louisiana data center through a partnership with Blue Owl Capital. The social media titan’s maximum exposure for the venture is $46 billion, according to its filings with the Securities and Exchange Commission. The company announced last week that it would expand its planned campus and is expected to spend as much as $250 billion on the project, Bloomberg News has reported.
Alphabet, Google’s parent company, keeps VIE arrangements for leases and credit backstops for data centers along with other guarantees related to power infrastructure off its balance sheet.
Microsoft provides few details about its VIEs, only stating that it doesn’t consolidate those entities.
Oracle Corp., for example, has agreed to backstop another entity’s lease for up to $3.3 billion. The database management company has $260 billion of future lease commitments mostly for data centers that will eventually roll onto its balance sheet, according to its SEC filings. Ratings agency S&P Global downgraded Oracle’s credit earlier this month due in part to its “stretched leverage.”
Trillions Pressure Accounting
Meta’s auditors at Ernst & Young said it was “challenging” to evaluate whether the social media giant has the power to direct the activities of its Blue Owl joint venture.
To Ben Butler, an investment analyst for Veritas Investment Research Corp., Meta should bring its Hyperion data center project onto its balance sheet.
Meta — as the sole tenant of the project, an equity investor and property manager — appears to have the power to direct its activities, Butler said. The social media giant also has disclosed billions in obligations related to the project, he said.
Managing Optics
Not showing interest payments on credit funding AI infrastructure projects boosts profit metrics like EBITDA, said Jennifer Law, chief financial and operating officer at K2 Integrity, a risk consulting firm.
“It can speak levels about what stage we’re at if companies are having to rely on SPVs to make their return on capital look good, to make their free cash flow look good, to make leverage look more attractive,” Butler said.
Ratings agency Moody’s assesses future lease commitments as it weighs the debt load of companies. Those future payments will drain cash, hitting metrics like free cash flow, Gonzales said.
Investors have to dig through disclosures attached to corporate financial statements to find details on the off-balance sheet structures and how each firm accounts for those arrangements and any related obligations.
The information is there, but finding it requires more work than if Meta, for example, borrowed directly to finance the build out, said Gil Luria, head of technology research for D.A. Davidson & Co.
“Enron’s crime wasn’t having special purpose vehicles. Enron’s crime was hiding them,” Luria said.
On and Off Balance Sheet
- Alphabet $225B On, $408B Off
- Meta $152B On, $421B Off
- Microsoft $280B On, $339B Off
- Nvdia $64B On, $151B Off
- Oracle $219 On, $292B Off
- Amazon $475B On, $210B Off
Circular Financing
Nvidia is facing scrutiny over allegations of employing “circular financing” (or “round-tripping”), where the company allegedly invests in or lends money to AI startups and cloud providers (e.g., OpenAI, CoreWeave), which then use those funds to purchase Nvidia’s GPUs. Analysts worry this creates artificial revenue growth and inflates AI demand.
AI Overview of the Controversy
- The Mechanism: Nvidia invests heavily in companies like OpenAI and CoreWeave, which are simultaneously the largest customers for their H100/B200 chips.
- Concerns: Critics argue this, similar to historical telecom bubbles, creates a high-risk ecosystem where the “growth” is just money circulating between firms. If the cash flow stops or AI monetization fails, the entire chain could collapse.
- Nvidia’s Stance: Nvidia has denied these claims, providing a seven-page memo to analysts arguing they do not rely on such arrangements to grow revenue.
- Evidence Cited by Critics: High Days Sales Outstanding (DSO) (a measure of how long it takes to collect payment) suggesting “phantom revenue” and extreme customer concentration, with a massive percentage of revenue coming from a few heavily-invested partners.
Nvidia Denial
On November 29, 2025. Yahoo!Finance reported Nvidia says it isn’t using ‘circular financing’ schemes. 2 famous short sellers disagree.
Nvidia (NVDA) sent a memo to Wall Street analysts over the weekend arguing that it is not engaged in vendor financing, a controversial practice in which suppliers invest in or extend loans to their own customers.
Famed short sellers Jim Chanos and Michael Burry aren’t so sure.
A Guide to the Circular Deals Underpinning the AI Boom
Bloomberg has a January 22, 2026 article, A Guide to the Circular Deals Underpinning the AI Boom
What makes a deal circular?
The term typically refers to an arrangement in which one company invests in another firm that buys its products and services: By doing so, the businesses effectively bind their fortunes more tightly to one another. (A circular deal is different from a fraudulent “round-trip” transaction, a term regulators have used for sham trades with no economic substance that are designed to inflate reported results.)
So what’s the problem?
If revenue from AI products does not grow as much or as fast as expected, company B might find itself staring at untenable bills for data center capacity and hardware. Company A loses twice — company B stops buying its products and its stake in company B tumbles in value.
Circular deals don’t just increase the potential damage to the companies in a market downturn. They can also skew the balance of incentives to encourage bad decision making. A company that has one of its suppliers as a major shareholder may be more likely to keep buying its stuff whether or not it makes commercial sense. That increases the risk of money being spent to secure business that fails to materialize. The circularity can be most risky when a handful of buyers are responsible for a large share of the market — as is the case with AI.
Here we go again?
During the internet boom of the late 1990s, fiber optic networks were built on the promise of relentless growth. Equipment makers helped to fuel the expansion with vendor financing — loans and other support that allowed telecommunication service providers to sustain the heavy investments.
When demand forecasts fell short and prices for transporting internet data sank, the model broke: Heavily leveraged carriers slashed spending and some filed for bankruptcy. Much of the capacity sat underused for years as the industry consolidated.
Paul Kedrosky, a venture capitalist who covered networking and communications companies as a technology analyst during the telecom boom, said AI capital spending is climbing toward levels last seen at the peak of the late-1990s fiber-optic buildout. In some cases, he said, the risk is that facilities using today’s semiconductor chips will become obsolete before they’ve made a return on investment.
This Isn’t Fraud
Nvidia isn’t Enron, Global Crossing, or WorldCom.
It will remain profitable even if it the some businesses supporting it default on payments.
But how long can this growth go on with AI-Related companies that have zero earnings?
Here We Go Again Heartaches
The hardware makers and cloud providers post massive revenues.
However, the pure-play AI developers like OpenAI and Anthropic are operating at a significant loss as they burn billions on infrastructure to build and run their models.
That money is fueling profits at the chipmakers. But most of the risk is hidden off the balance sheet, inflating earnings.
One never knows how long this can go on until hindsight.
But unless profit matches current lofty valuations, and the pure play AI companies start making huge profits, this is going to end the same way it always does. Heartaches.
Someone noted on Twitter recently that the much greater ease of app development hasn’t brought us many really new apps. The big hit to software company valuations was supposedly due to their customers being able to use AI to code in-house replacements. But those are just lower-cost replacements for existing apps, not new apps. What if, after all those replacements have been coded, it turns out there aren’t that many really new apps whose development would consume the available “AI” coding capacity?
most new technologies from steam ships to RR to autos, tv and radio and internet always tend to draw the same pattern of investing. over investment euphoria. tons of scams and insider deals and lots of bankruptcies, but we still use ships and trains and internet………..how big a deal AI will be is still to be seen. i imagine it will have many uses to make life easier.
Karl Denninger covered this earlier this week, and better I might add.
Chris Irons (Quoth The Raven) has several articles that are also better.
Those commentators actually opine on things with original and unique thoughts, rather than regurgitating, amplifying, and piggy backing off the work of others.
PapaDave’ comments were better than this one
Six000MileYear has several better than this one
These commentators actually have something to say, rather than you clown
You know your uncle daddy loves you?
There is nothing new under the sun – though the scale keeps growing by orders of magnitude. Besides Enron –
Chainsaw Al cooking the books at Sunbeam, also involving customer circle jerk vendor “financing / advanced sales”.
AIG – so the story goes, H did not know anything going on with his derivatives desk in London. Another convenient “rogue” to blame appears, as usual. When TSHTF later in 2008, as they were set up to be Goldman Sachs’ patsy, the real beneficiary of that part of the synthetic CDS bailout.
At least Enron had some real, productive assets, such as pipelines and tank terminals, which Kinder Morgan quickly grabbed.
This is a blog, not a publication.
If you’re doing thesis research, you’re off track.
Weather forecasts don’t just tell you it’s going to rain—they tell you the probability they’re right. Yet ratings agencies assign precise credit ratings to companies making hundreds of billions of dollars of AI commitments, with no indication of how confident they are in that assessment.
Given the uncertainty surrounding AI economics, shouldn’t a rating come with a confidence level? How can anyone honestly claim to know that Meta deserves an Aa3 rating rather than something materially lower, when the biggest investment bet in its history has barely begun to play out?
Good point, these are the same credit ratings agencies that gave AAA ratings to tranches of “Liar Loan” mortgages and sold them to widows and orphans in 2005 – 2008. While internally calling them “garbage”.
In that collapse, Millions of Americans lost their homes while the banks and insurance companies were bailed out.
In this situation, the buildout costs are real but the revenue streams are not.
Politically speaking the history of the 2003 – 2012 playbook was to have Bush/Cheney/Fox News keeping Americans entertained with false claims of WMD’s in Iraq:
Selling inflated homes based on the dropping of credit standards.
Loaning money to anyone for anything.
When valuations were stretched beyond all reason, Hank Paulson pulled the credit rug out from the magic carpet credit ride. This crashed the entire mess into a very hard “Credit Denied” wall.
The result was that “net exposure” became “Gross Exposure” the moment one counterparty failed. This locked up the global credit markets until the massive bailouts for the banks and insurance companies socialized the losses.
In terms of timing? The crash happened between Obamas election and his taking office. If it happens again the “Boomers” will find their IRA’s decimated exactly when they need them as the stock market is gored to the bone.
The pattern is pretty clear that Republicans create a financial mess that flows capital into their hands and let it collapse as they leave office.
Wash, Rinse, Repeat!
As you point out here an economy cannot survive without demand, i.e. a secure supply of disposable money in the hands of the general populace.
A new monetary and economic paradigm of Strategic Monetary Gifting which includes both a universal dividend and a 50% Discount/Rebate at regular consumer retail sale and the financial point of retail sale which is one’s mortgage, insurance, automobile or other big ticket item’s monthly payment provides the demand and so the security profit making economies require.
wisdomicsblog.com
Elon has warned us about wasting money for retirement savings.
In a few years AI will make everything free.
Balance Sheets are old school now.
Just luxuriate in the cash flow.
Their goal is to make every utility, every machine, every vehicle, every appliance, every computer, every phone, EVERYTHING utterly DEPENDENT on A.I. and force all to pay extortionate RENT just to have basic function. They will happily risk ALL to achieve this. When it fails (not if), the disaster will be total. Have a wonderful day!
All capitalists gravitate toward rent. Capitalism is merely a feudal economic system based on the property of capital, instead of land.
Losses will be socialized. Profits will be privatized.
Nobody cares, in fact, this will be applauded, as long as number go up.
Would be nice if someone explained how massive investment in data centres is benefiting the important things in life.
Do I need to know in real time how much a Hollyboot movie grossed, or who had flatulence in last 24 hours? Because that’s what it seems this is going.
Or is it just an massive overinvestment to keep up with the Joneses?
I made a picture of a guy in a baclava balaclava the other day with it… kinda fun.
“It will remain profitable even if it the some businesses supporting it default on payments.”
But still its earnings will have to take a hit and the stock price will become even more overvalued than it is now.
How close are we to the “Wile E. Coyote Moment” now?!
No one knows.
That’s the whole point of Nassim Taleb fund which is always wagering for that black swan moment. Lots of tiny losses until one day when the black swan arrives.
It’s the complementary of a venture fund, which seeks a white swan to pay off.
I’ve always wondered what “winning the A.I. race” actually looks like. But I know there will be SO MUCH AI in EVERYTHING and EVERY COMPANY that the huge supply of it gushing over humanity will mean HIGH SUBSCRIPTION FEES generated by the AI winner companies which will pay off all the AI cap-ex debt while generating huge profits for the investors while everyone else gets rich on UBI as they gorge on Only Fans. /sarc
It’s a race to the future.
Catching up to the horizon.
Winning the AI race means your Skynet defeats other countries Skynets when the inevitable final AI showdown happens.
And layer on the following:
“According to Bloomberg, UBS and other firms have been exploring structures that package stakes in private-credit funds into bonds. Because perpetual private-credit vehicles do not fit neatly into conventional ratings models, bankers are looking to add insurance “wrappers” that allow portions of the deals to inherit the insurer’s stronger credit profile. The resulting paper can then be marketed as investment grade, even though the assets underneath remain opaque, illiquid private-market investments.”
https://www.zerohedge.com/news/2026-07-20/oh-my-fking-god-theyre-doing-it-again
Just like the financing during the housing bubble.
This worked out great for The People Who Matter.
I would like to see the legal acrobatics in the language of those “insurance wrappers”. It’ll become next-gen memes in law schools.
So it is AI-nron this time?!
With elon
I do believe the US Govt wants to “win” the AI race. I also believe the current republican administration will do whatever they can imagine to support their desires (This is like the “inmates running the asylum”).
My question/curiosity is what will happen if there is a blue wave in Nov? Will the new legislation continue to push to “win” the AI race? Will there be retribution towards the attempt at collapsing democracy? Will regulations slow the US AI progress?
If there is a Blue wave, environmentalists will shut down data center or prevent their construction.
If you’re talking about the DSA-driven democrats, they will want to use AI to censor their political opponents. So they’ll strongarm AI companies to do their bidding, keeping them alive at the same time. They share one key component with AI engines: they create language that generates support without having to act on it.
It’s almost identical to what happened in Greece in the 1980s when the “democratic socialists” over there took over 90% of the Press. The reasons it didn’t work in the long run, was that the EEC/USA were watching closely, and they run out of money quickly.
Btw, I hear that AOC is leading New Hampshire in support for presidential nomination. When I mentioned such a possibility a few months ago, you guys thought I was drunk. I have the playbook, I lived it over there, it’s the same, step by step.
Now they will shift their language to promise vague support for the American Industry and workers’ unions, all in one basket of word salads.
Well, if y’all hadn’t insisted on electing a pants shitting larcenous child molesting dementia patient president and letting him run hog wild, we wouldn’t be in this situation, now would we?
Cry and tear your hair some more. Live the misery you brought on us all.
Blue wave? Elections? Come on. The Chief Pedophile of the United States is going to pull an Ortega and declare no more elections ever! Two senile 80 year old geezers trying to hold back the March of time.
China leads in 5G, ban Huawei.
China leads in EVs, ban’em.
China leads in social media, force sell TikTok to Usonian oligarchs.
China leads in LLMs, ban’em.
Enron was a single company. AI is made of many companies.
There will be a crash at some point. Survivors will be revalued. The world will continue. Try not to be left standing when the music quits.
Regardless, eventually AI will be in charge, robot workers will do all the work that humans now do and everything will be free.
Game theory suggests to me there will some resources vastly more “free” to some humans than to others. I’m not saying that’s right or wrong, necessarily.
Did you forget that Enron was also one of many companies? Your conclusion seems unrelated to anything what but I guess that’s what you get when you’re mentally retarded and think the price of oil should magically be $60 again.
So much automation already, and yet, the prices are higher. Nothing essential has become free, even if it’s almost fully automated.
Keeps those earnings out of the hands of those filthy poor though.
Shanaka Anslem Perera posted an article about this yesterday.
There will be competitive shakeouts, one way or another. Hyperscaler valuations are based on optimism that cannot be sustained across the whole competitive landscape. When Enron’s SPVs buckled, its credit rating collapsed in days. In 2008, when SPVs buckled, they came back on balance sheets, with financial restatements. Firms like CITI came to the feds with hat in hand for vast bailouts. Again, only worse this time, we have a combination of negligent federal enforcement (opening up big moral hazard in the competitive playing field), so, feedback into decaying financial health in firms, that is not suitably accounted for. Add to that, worst case, enhanced risk these huge firms will ask for (and probably get) public bailouts. We taxpayers are underwriting all this BS as future involuntary insurers ex post facto, far more than we should be. The hyperscalers are happy to offload this risk on us, and the feds are too starry eyed with hope for magic financially deregulated prosperity, a religious fervor for pie in the sky.
“negligent federal enforcement”
What are you talking about? Like what? Enforcing existing laws is negligent?
Give an example of an actual penalty on an AI industrial entity by the federal government that wasn’t breaking a federal law.
Do you think AI corporations should be able to do what ever they want?
I am talking about good or careless risk management, which is done (or neglected) in the creation of regulations (or not), and in their enforcement (or not). 2008 showed under-regulation was poor risk management, when major structures collapsed unexpectedly, globally, in the wake of nonexistent or “soft touch” regulation, where supposedly players could handle their own risks. And they utterly could not, or would not, as even Greenspan conceded in later testomony before Congress.
With AI, the Trump admin has leaned heavily toward (1) looseness toward high flying financial structures and actors, and (2) completely removing barriers to experimentation in AI, regardless of asserted risks (as by states) to instabilities and hazards that may be causing. In the recent phase, it was listening strictly to people like Zuckerberg, who views life and systems as a sort of gleeful rat science experiment. The Trump admin did an about face with the release of Anthropic Mythos, demonstrating how vast swaths if digital security could be breached, where the admin now freezes new releases in their tracks, and does a review. So that would be encouraged. Some hyperscalers have expressed some relief at this. But it still does not have the look of a mature market structure or regulatory system. There is wild west all over it, including these SPVs. They are playing competitive chicken with a huge segment of human prospects and resources.
Trump mashed down the “prudential” fed regulatory body designed to monitor and catch this kind of systemic risk, by the Dodd Frank Act. That law was designed to catch just these kind of sneaky process that may appear anywhere n he financial system. He reduced the requirements for reporting, and exempted many firms from any oversight. He lowered capital buffers for many financial firms that would help withstand a buckling in these structures.
So not one example. Thanks for making my point.
And so the Democratic socialism wave will continue to grow like wildfire as an outraged population demands a government that functions. At this point I think it’s fair to conclude they’re a very likely candidate for the next major player in American politics in the next 10-20 years, if only because literally no one else is hearing people’s voices.
If Trump ends up destroying the economy with his insane Iran war and becomes the new Hoover, the new FDR will succeed him in 2028. I actually think Mamdani could win the next Presidential election if he was eligible.
Hell I’d vote for him.
I am a capitalist through and through but it’s time to face the facts: what America has today is not even close to capitalism. Competition is discouraged, academics are silenced, all must support the machine. We have more in common with feudalism than anything else under this system. By framing all criticism of the system as the senseless word “communism”, we have utterly destroyed the ability to course correct.
We can only hope. of the people by the people for the people and not just the people with lots of money. There are much better places to live than the good ole USA
Sooner or later the truth will come out on these off balance sheet financings. What is the banking system’s exposure?
if we can confine it to the banks, there is a playbook. if we are taking public equity stakes in these raging behemoths, that’s another whole game. Trump on this is incoherent, but meddling.
The banks learned after the financial crisis in 08 to never again leave this on their books. These loans get packaged into bonds which are bought by big mutual funds, the kind held by pension funds and 401ks.
So everyone is backing this either by buying the debt via bonds or by owning the stock itself in their 401k (as part of some big fund that owns lots of stocks).
If you want to avoid this in your own 401k / investments you’ll need to invest directly in stocks or check your funds to make sure they don’t own any of those companies / companies debts as part of their holdings.