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.

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.

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.

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.

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.

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?

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?

>should be taking that into account

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.

One can lead to the other.

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?

Nvidia could have invested elsewhere, but they’re doubling down on AI.

Their shares have been tanking for a month, even after a very good earnings report, so perhaps the market seeks a little more diversity?

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.

[0] https://www.bloomberg.com/news/features/2025-10-07/openai-s-...

[1] https://www.cnbc.com/2025/12/04/nvidia-has-a-cash-problem-to... -- Actually "Cash and short-term investments", not sure what is included in that, but I don't think it includes these major deals.

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.

if you invest 20 and get 20 then you got 0% profit

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.

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.

>> If you invest 20 billion and you get back 20 billion

Its about keeping Wall Street bubble momentum, not financials.