Speaker 1: Zone Media.
Speaker 2: Hello, and welcome to this week's Better Offline. I'm ed Zetra. Now.
Speaker 2: At the end of November, and Video put out an
Speaker 2: internal memo that tried to well get ahead of a
Speaker 2: few things, is how I'd put it, that had been
Speaker 2: bubbling up in the news, specifically comparisons to Enron, the
Speaker 2: massive energy trading giant that imploded in the early two
Speaker 2: thousands after well a lot of fraud, also with some
Speaker 2: other concerns about its earnings. Said memo was leaked to
Speaker 2: Baron's reporter Take Him, who is one of the largest
Speaker 2: in video boosters in the known universe. He posts constantly
Speaker 2: about how Invidio is going to be the biggest, most
Speaker 2: hugess company in the world. He's meant to be like
Speaker 2: an analyst and a reporter, but he mostly just seems
Speaker 2: like a cheerleader and it's kind of embarrassing. Now, nevertheless,
Speaker 2: he was leaking a memo that was quite worrisome, so
Speaker 2: oh no, and Vidio chose to disseminate it through him,
Speaker 2: but also to short sellers. The actual providence of this,
Speaker 2: or is it providence? I don't know, but someone will
Speaker 2: correct me is kind of confusing anyway, long story short,
Speaker 2: people have a few concerns about in Nvidia, and well
Speaker 2: you shouldn't. Though, you shouldn't have any concerns at all,
Speaker 2: because in video's very secret, not to be leaked immediately.
Speaker 2: Document spent thousands of words very specifically explaining how in
Speaker 2: video was fine, and most importantly, by the way, nothing
Speaker 2: like Enron. Now why did I need to say all
Speaker 2: of this? And why did Nvidia need to sell of this?
Speaker 1: Well?
Speaker 2: In Vidio wrote this note as a response to both
Speaker 2: short seller Michael Burry, famous of course from The Big
Speaker 2: Short and Sound Capitol. There's a whole bunch of other
Speaker 2: stuff there, but putting that aside, but also because of
Speaker 2: another thing, a guy called Shinaka and Slim Pereira, who
Speaker 2: wrote a piece called, and I quote the algorithm that
Speaker 2: detected the six hundred and ten billion dollar fraud, how
Speaker 2: machine intelligence exposed the AI industry's circular finance scheme. And
Speaker 2: I've now been sent this about eleven times maybe more
Speaker 2: since it came out.
Speaker 1: Now.
Speaker 2: The reason I'm not going to link to Pereira's piece
Speaker 2: in the show notes or in the companion newsletter to
Speaker 2: this episode is simple. It's full of bullshit, and I've
Speaker 2: had some very good reporters linked to this thing. I've
Speaker 2: heard from a lot of people say all this scared me,
Speaker 2: and the fact it's scared in video really pissed me
Speaker 2: off too, because it's straight up got lies in it,
Speaker 2: like made up stuff. I'm not even talking just misstatements.
Speaker 2: I'm talking about really specific things. It's made up. For example,
Speaker 2: in one part, Perera talks about major semiconductor distributor Arrow
Speaker 2: Electronics stating things and it's Q three twenty twenty five
Speaker 2: earnings about in video. Let me be fucking clear about this.
Speaker 2: Really pissed me off. Arrow makes no statements of any
Speaker 2: kind about in video on its earnings calls, in its
Speaker 2: ten Q or its earnings presentation. You can go and look.
Speaker 2: He doesn't link to anything. By the way, and if
Speaker 2: you need another example, Prera claims that when in Vidia
Speaker 2: launched the Hopper H one hundred architecture in Q two
Speaker 2: fiscal twenty twenty three, also amid reported supply constraints in
Speaker 2: strong demand, inventory declined eighteen percent quarter of a quarter
Speaker 2: as the company fulfilled backloged orders. If you bothered to
Speaker 2: go and look at a videa's inventory from that period,
Speaker 2: which is public. By the way, you can see that
Speaker 2: inventory increase. Now, I'm not pissed off at anyone listening
Speaker 2: to this. I'm pissed off at any financial media that
Speaker 2: gave this any kind of attention. And I'm kind of
Speaker 2: pissed off at in Video for doing it too. It's
Speaker 2: aislop and I've not heard of Brera before, but as
Speaker 2: LinkedIn says, he is, and I'm not shitting you. The
Speaker 2: CEO at pet Express Sri Lanka, I would suggest getting
Speaker 2: your financial advice elsewhere and at a minimum, making sure
Speaker 2: that you read out lets that actually source their data. Anyway,
Speaker 2: as you're probably working out, all of this is fine
Speaker 2: and normal. This happens normally all the time. Companies do
Speaker 2: this all the time, especially successful ones. And there's nothing
Speaker 2: to be worried about here, because after reading all seven
Speaker 2: pages of this document, we can all read that Invidia
Speaker 2: is nothing like Enron. No really though, in Video is
Speaker 2: nothing like Enron. And it's kind of weird that anyone,
Speaker 2: especially you, by the way, as saying that Enron and
Speaker 2: Nvidia have any similarities at all. They just put out
Speaker 2: a very long document, by the way, and it says
Speaker 2: they're not Enron. Why do you keep asking about Enron.
Speaker 2: All right, why are you being weird? Okay, Now, in
Speaker 2: Vidia said something about Enron, but that's because fools and
Speaker 2: vagabonds keep suggesting that in Video was like Enron, and
Speaker 2: very normally in Vidia has decided thousands of words at
Speaker 2: a time to set the records straight, and I genuinely
Speaker 2: no jokes do agree in Vidia is nothing like Enron.
Speaker 2: Putting aside how I might feel about the ethics or
Speaker 2: underlying economics of Generative AI, in Vidia is an incredibly
Speaker 2: successful business that has incredible profits, holds an effective monopoly
Speaker 2: on Kouda, which powers the underlying software layer to running
Speaker 2: software on GPUs, specifically Generative AI, and not really much
Speaker 2: else that has any kind of revenue potential. Now talked
Speaker 2: a bit about Cooder and the Hater's Guide to in Video,
Speaker 2: which I've linked to in the show notes, And yes,
Speaker 2: while I believe that one day this will all be
Speaker 2: seen as one of the most egregious wastes of capital
Speaker 2: of all time, for the time being, Jensen Huang is
Speaker 2: potentially the greatest salesperson of all time. Nevertheless, people have
Speaker 2: somewhat run away with the idea that Invidia is Enron,
Speaker 2: in part because of the weird circular deals in videos
Speaker 2: built with NEO clouds, dedicated AI focused cloud companies like
Speaker 2: cor We've, Lambda and Nebius, who run data centers full
Speaker 2: of GPUs sold by a video, which they then use
Speaker 2: as collateral for loans to buy more GPUs from in video.
Speaker 2: I can see why people are a little concerned. But
Speaker 2: as dodgy and weird and unsustainable as this all is,
Speaker 2: it isn't illegal in it certainly isn't Enron because in video,
Speaker 2: as I've been trying to tell you, is nothing like Enron.
Speaker 2: Now you may be a little confused. I get it
Speaker 2: that Invidia is bringing up Enron at all. Nobody seriously
Speaker 2: thought that in video was like Enron, not even the
Speaker 2: psygonomous and analyst just Daurio, who has been questioning its
Speaker 2: accounting practices for years. Because Enron was genuinely one of
Speaker 2: the largest criminal enterprises in history, and Nvidia is, at worst,
Speaker 2: I believe, a bit dodgy and doing whatever it can
Speaker 2: to survive through various forms of accountancy alchemy. Wait, wait,
Speaker 2: you still think in Vidia is Enron? What's it going
Speaker 2: to take to convince you? I just told you that
Speaker 2: in Vidia isn't Enron. In video itself has explained at
Speaker 2: length as I'll explain by the way, it's not Enron.
Speaker 2: And I'm not sure why you keep bringing up Enron
Speaker 2: all the time. Stop being an asshole. Enron and in
Speaker 2: Vidia are nothing alike. Look. Look, in Vidia's own memo
Speaker 2: said that, and I quote in Nvidia does not resemble
Speaker 2: historical accounting frauds because in Vidia's underlying business is economically sound,
Speaker 2: its reporting is complete and transparent, and it cares about
Speaker 2: its reputation for integrity. Now I know what you're thinking.
Speaker 2: Why is the largest company on the stock market having
Speaker 2: to reassure us about its underlying business economics and reporting.
Speaker 2: One might immediately begin to think strives out effects style,
Speaker 2: that there there might be something up with in Vidia's
Speaker 2: underlying business. But nevertheless, you know what, fuck it in Vidio,
Speaker 2: grab your coat, we're going out. Let's forget how all
Speaker 2: of this ever happened? What? What?
Speaker 1: What was?
Speaker 2: What was that first?
Speaker 3: Unlike en Run, in Vidia does not use special purpose
Speaker 3: entities to hide debt and inflate revenue. In Vidia has
Speaker 3: one guarantee for which the maximum exposure is disclosed in
Speaker 3: Note nine of eight hundred and sixty million dollars and
Speaker 3: is mitigated by four hundred and seventy million dollars in escrow.
Speaker 3: The fair value of the guarantee is a crude and
Speaker 3: disclosed as having an insignificant value. Nvidia neither controls nor
Speaker 3: provides most of the financing for the companies in which
Speaker 3: in Vidia invests.
Speaker 2: Oh okay, I'm I wasn't really thinking about all that.
Speaker 2: I was literally just I was just saying, how you
Speaker 2: were nothing like Enron. We're good. Come on, let's let's go.
Speaker 2: Let's the second.
Speaker 3: The article claims that in Video Ever symbols WorldCom but
Speaker 3: provides no support for the analogy WorldCom over stated earnings
Speaker 3: by capitalizing operating expenses as capital expenditures. We are not
Speaker 3: aware of any claims that Nvidia has improperly capitalized operating expenses.
Speaker 3: Several commentators alleged that customers have overstated earnings by extending
Speaker 3: GPU depreciation schedules beyond economic useful life. Rebutting this claim,
Speaker 3: some companies have increased useful life estimates to reflect the
Speaker 3: fact that GPUs remain useful and profitable for longer than
Speaker 3: originally anticipated, in many cases, for six years or more.
Speaker 3: We provide additional context on the depreciation topic below.
Speaker 2: Uh okay, I mean I wasn't even thinking about WorldCom.
Speaker 2: I wasn't thinking about WorldCom at all. I genuinely hadn't
Speaker 2: thought about WorldCom in a while. You're nothing, You're nothing
Speaker 2: like them listeners for context. WorldCom was a telecommunications company
Speaker 2: that collapsed in the early two thim in part because
Speaker 2: it had a tendency of overstating its earnings by billions
Speaker 2: and billions of dollars in total eleven billion dollars. This
Speaker 2: followed a failed merger with Sprint, which was blocked for
Speaker 2: antitrust reasons, essentially forcing the company to grow its stock
Speaker 2: through customers rather than mergers. You know, normal way. Kind of,
Speaker 2: the telecom sector was pretty saturated back there, making this
Speaker 2: a pretty tall ask, and so we ended up with
Speaker 2: a bunch of dodgy accounting, which all fell apart when
Speaker 2: the company filed for bankruptcy. Hmmm, in video, you you're
Speaker 2: not doing anything world commie, are you?
Speaker 1: Why are you bringing up world Com?
Speaker 2: To be clear, by the way, WelCom was doing capital
Speaker 2: f fraud, and its CEO, Bernie Ebbers, went to prison
Speaker 2: after an internal team of auditors led by WorldCom VP
Speaker 2: of Eternal Auditing Cynthia Cooper, reported three point eight billion
Speaker 2: dollars in misallocated expres says and phony accounting entries. That
Speaker 2: is just straight up fraud. So okay, look, in Video,
Speaker 2: you are really specific about saying you didn't capitalize operating expenses,
Speaker 2: capital expenditures. You're not doing that. That's that's great, great stuff.
Speaker 2: I literally never thought you'd done that before. I genuinely agree.
Speaker 2: You have nothing like WELLcom in VideA, nothing like Wollcom anyway.
Speaker 2: Glad to hear about the depreciation stuff. Looking forward to
Speaker 2: hearing more about Bird.
Speaker 3: Unlike Lucent, in Vidia does not rely on vendor financing
Speaker 3: arrangements to grow revenue. In typical vendor financing arrangements, customers
Speaker 3: pay for products over years. In Vidia's DSO was fifty
Speaker 3: three in Q three. In Video discloses our standard payment terms,
Speaker 3: with payment generally due shortly after delivery of products. We
Speaker 3: do not disclose any vendor financing arrangements. Our customers are
Speaker 3: subject to strict credit evaluation to ensure collectibility. In Video
Speaker 3: would disclose any receivable longer than one year in long
Speaker 3: term other assets. The six hundred and twenty three million.
Speaker 3: Other balance as of Q three does not include extended receivables.
Speaker 3: Even if it did, the amount would be immaterial to revenue.
Speaker 2: All right, Uh, all right, man. If anyone asks whether
Speaker 2: you were like famed dot com crashout Loosen Technologies, I'll
Speaker 2: be sure to correct them. Oh god, I'm gonna have
Speaker 2: to explain another business that failed around the millennium right now,
Speaker 2: aren't I? After all, Loosent situation was really different, well
Speaker 2: sort of. Loosen was a giant telecommunications company, the one
Speaker 2: one that was for a time extremely successful, really really successful,
Speaker 2: in fact, turned around by the now infamous Carli Fiorina. Furina,
Speaker 2: who joined Loocent from AT and T, had a strong start,
Speaker 2: and in her first few years at the company before
Speaker 2: she left join the HP, Loosen saw revenues grow by
Speaker 2: fifty eight percent to thirty eight billion dollars and their
Speaker 2: income grow from a small loss to a four point
Speaker 2: eight billion dollar profit. In video, this all sounds great.
Speaker 2: Why wouldn't you want to be compared to Oh? Oh yeah, yeah, sorry,
Speaker 2: you see. In nineteen ninety seven, Farina took over the
Speaker 2: group responsible for selling geared to telecoms providers, and within
Speaker 2: one year, that business unit grew by just shy of
Speaker 2: a quarter. In two years, it had jumped from fifteen
Speaker 2: point seven billion dollars when Furina took over to twenty
Speaker 2: three point six billion dollars in nineteen ninety nine. Lucent
Speaker 2: did this by lending money to its customers, with its
Speaker 2: loans appearing on its balance sheets. As quoting CNN here
Speaker 2: an allegedly sold assem now Lucient was classifying debt as
Speaker 2: nasse and did something called vendor financing, which means you
Speaker 2: lend somebody money to buy something from you. It turns
Speaker 2: out Loosen did a lot of this, and in a
Speaker 2: very simple way. This is like giving someone a ten
Speaker 2: dollar loan to buy ten dollars of bricks from you.
Speaker 2: It's just handing the same ten dollars back and no
Speaker 2: one's really doing well here. Look. These loans were also
Speaker 2: very generous with Telco's small fledgling telecommunications companies with minimal
Speaker 2: assets and revenue by the way, and often mountains of
Speaker 2: high interest. They're often paying nothing up from the loans
Speaker 2: themselves were often bigger than the company itself and far
Speaker 2: beyond what the company could hope to repay. Okay and
Speaker 2: Video look we're we're friends.
Speaker 1: Okay.
Speaker 2: I hate to say this, but I kind of get
Speaker 2: why somebody might say you're doing loos and stuff. After all,
Speaker 2: Rumor has it that in your supposed to deal with
Speaker 2: open AI, a company that burns billions of dollars a year,
Speaker 2: will maybe involve leasing your GPUs to them, which sure
Speaker 2: sounds like you're doing vendor finance.
Speaker 3: We do not disclose any vendor financing arrangements.
Speaker 2: Oh all right, Okay, you're not disclosing any vendor financing arrangements. Okay,
Speaker 2: I I got it.
Speaker 1: Man.
Speaker 2: Anyway, back to Loosen. Loosen really did fuck up big time, though,
Speaker 2: indulging in the dark art of circular vendor financing, the
Speaker 2: legs of which and VIDIA has not kind of. In
Speaker 2: ninety ninety eight, signed its largest deal, a two billion
Speaker 2: dollar deal, an equipment and finance agreement with telecommunications company Windstar,
Speaker 2: which promised to bring I shit you not, one hundred
Speaker 2: billion dollars in new business over the next five years
Speaker 2: and built a giant wireless broadband network along with expanding
Speaker 2: Windstar's optical networking I quote the Wall Street Journal. Windstar
Speaker 2: was one of the scores of standalone startup companies created
Speaker 2: in the late nineteen nineties to compete in the market
Speaker 2: for local telecom services. These firms, known as competitive Local
Speaker 2: Exchange Carriers or clacs, raised billions of dollars in debt
Speaker 2: and equity financing and embarked upon ambitious plans to compete
Speaker 2: with incumbent carriers. For a time in the late nineties,
Speaker 2: their stocks were hot properties, outpacing even Internet stocks. In
Speaker 2: December ninety ninety nine, Wyatt would say that Windstar's small
Speaker 2: white dish antennas heralded a new era and new mindset
Speaker 2: in telecommunications and included this awesome quote about Loosen from
Speaker 2: CEO and founder Will Ruhanna. On one level, we're a
Speaker 2: customer and they are a supplier. On another level, they're
Speaker 2: a financier and we are a borrower. On yet another level,
Speaker 2: they are providing services around the world to accelerate our development.
Speaker 2: They also want to use our service and have guaranteed
Speaker 2: one hundred million dollars in business. Hell yeah, I also
Speaker 2: love this because you can read this or hear this
Speaker 2: or what have you, and go and read current magazines
Speaker 2: talking about these companies and see them do the same things.
Speaker 2: Just look, Oh my god, there is actually another great
Speaker 2: coat I might want to share with you. Windstar is
Speaker 2: a publicly traded company and has more than four thousand
Speaker 2: employees and reports more than three hundred million dollars in
Speaker 2: annual highed coore revenues. We love annualized revenues, double, folks,
Speaker 2: we love them. Just do month times to where you
Speaker 2: get the biggest numbers we've ever seen. They're beautiful.
Speaker 1: We love them.
Speaker 2: A company making about twenty five million dollars a month
Speaker 2: twenty five million dollars a month in revenue signed a
Speaker 2: two billion dollar loan two billion dollars in financing for
Speaker 2: business that would make them one hundred million dollars ass
Speaker 2: across five years. They aren't teaching this in business school,
Speaker 2: do they? Weirdly, Winstar's Wikipedia page says that revenues were
Speaker 2: four hundred and forty five point six million dollars for
Speaker 2: the year ending nineteen ninety nine, or around thirty seven
Speaker 2: point one million dollars a month. These numbers don't line
Speaker 2: up so good, and probably because Windstar was kind of crooked. Now, WinStar,
Speaker 2: they loved raising money. Two years later, in November two thousand,
Speaker 2: it would raise one point oh two billion dollars for example,
Speaker 2: and it raised the remarkable five point six billion dollars
Speaker 2: between February ninety ninety nine and July two thousand and one.
Speaker 2: According to The Wall Street Journal, nine hundred million dollars
Speaker 2: of that came in December nineteen ninety nine for an
Speaker 2: investment from a bunch of investors, including, of course, Microsoft,
Speaker 2: with analyst Greg Miller of Jeffreys and Co. Saying the
Speaker 2: Microsoft investment is a significant endorsement that the technology will
Speaker 2: be used more aggressive in the future. Windstar can use
Speaker 2: the capital. They sure fucking can, can't they?
Speaker 1: Now?
Speaker 2: Another fun thing happened In November two thousand and two,
Speaker 2: Lucent would admit it overstated its fourth quarter profits by
Speaker 2: improperly recording one hundred and twenty five million dollars in sales,
Speaker 2: reducing that quarter as revenue from profitable to break even.
Speaker 2: Things would eventually collapse when Windstar couldn't pay its debts,
Speaker 2: filing for Chapter eleven bankruptcy protection on April eighteenth, two
Speaker 2: thousand and one, after failing to pay seventy five million
Speaker 2: dollars in interest payments to Loosen, which had cut access
Speaker 2: to the remaining four hundred dollars million dollars not four
Speaker 2: hundred dollars four hundred million dollars of its one billion
Speaker 2: dollar loan to Windstar. As a result, Windstar would file
Speaker 2: a ten billion dollar law soon in bankruptcy court in
Speaker 2: Delaware the very same day, claiming that Lucent breached its
Speaker 2: contract and forced Windstar into bankruptcy by well not offering
Speaker 2: to give it more money that it would not pay off. Elsewhere,
Speaker 2: things had begun to unravel for Loosened. A January two
Speaker 2: thousand and one story from The New York Times stopped
Speaker 2: the strange story of Lucent, a company that made up
Speaker 2: over thirty three billion dollars in revenue in its previous
Speaker 2: fiscal year, asking to defer the final trance of payment
Speaker 2: twenty million dollars for an acquisition due to and I
Speaker 2: quote accounting and financial reporting considerations. Now why would they
Speaker 2: do that? Well, Lucent needed to keep that money on
Speaker 2: the books to boost its earnings as its stock was
Speaker 2: in the toilet and was about to announce it was
Speaker 2: laying off ten thousand people and a quarterly loss of
Speaker 2: over a billion dollars. Over the course of the next
Speaker 2: few years, Lusent would sell off various entities, and by
Speaker 2: the end of September two thousand and five, it would
Speaker 2: have thirty thousand, five hundred staff and a stock price
Speaker 2: of two dollars in ninety nine cents, down from a
Speaker 2: high of seventy five bucks a share at the edge
Speaker 2: of nineteen ninety nine and one hundred and fifty seven
Speaker 2: thousand employees. According to VC Thomas Tunger's and that is
Speaker 2: his name, Luson had eight point one billion dollars of
Speaker 2: vendor financing deals. At its high, Lusent was still a
Speaker 2: real company selling real things, but it had massively over
Speaker 2: extended itself in an attempt to meet demand that didn't
Speaker 2: really exist. And when Lucent realized that it was, how
Speaker 2: did Degree demand itself to please the markets? To quote
Speaker 2: MIT Tech review and author Lisa Endlich, it believed that
Speaker 2: setting and meeting the expectations of Wall Street subsumed all
Speaker 2: other goals, and that Lucent had little choice but to
Speaker 2: ride the wave. To be clear, in Vidia is quite
Speaker 2: different from Lusam. He has plenty of money in the
Speaker 2: circular deals it does with Corweve and Lambda don't involve
Speaker 2: the same levels of risk. In Vidia is not, to
Speaker 2: my knowledge, backstopping Corwy's business or providing it with loans.
Speaker 2: Though in Vidia had agreed to buy six point three
Speaker 2: billion dollars of computers the buyer of last resort of
Speaker 2: any unsold capacity, and did mention an unnamed partner it
Speaker 2: had agreed to backstop the leases of in its most
Speaker 2: recent earnings. Nevertheless, Nvidia can afford this, and it isn't illegal.
Speaker 2: Though it is obviously propping up a company with flagging demand.
Speaker 2: Nvidia doesn't appear to be taking on masses of debt
Speaker 2: to find its empire either, with other fifty six billion
Speaker 2: dollars in cash on hand and a mere eight point
Speaker 2: four billion dollars in long term debt. Okay, we got there.
Speaker 2: This man and video is nothing like Loosen either. Okay,
Speaker 2: maybe there are some similarities, but it's different. No worries
Speaker 2: at all. I know I'm chill, I'm relaxed, and I'm
Speaker 2: most importantly normal. You still seem nervous in video. I
Speaker 2: promise you. If anyone asks me if you're like Loosen,
Speaker 2: I'll tell him you're not. I'll be sure to tell
Speaker 2: him You're nothing like Lucien. Are you okay?
Speaker 1: Dude?
Speaker 2: When did you last?
Speaker 1: Slow? Okay?
Speaker 3: So about inventory growth indicating waning demand, People are claiming
Speaker 3: that growing inventory in Q three, which was above thirty
Speaker 3: two percent quarter over quarter, suggests that demand is weak
Speaker 3: and chips are accumulating unsold or customers are accepting delivery
Speaker 3: without payment capability, causing inventory to convert to receivables rather
Speaker 3: than cash.
Speaker 2: Whoa, whoa, Okay, slow down, slow down? Who's been saying this?
Speaker 1: Oh?
Speaker 2: Everybody? Did Michael Burry scare you? Did you watch the
Speaker 2: Big Shorts?
Speaker 1: Say?
Speaker 2: Ah, Christian Bale's playing Pantera again? Eh? Anyway, how you've
Speaker 2: woken up everybody else in the house and they're all
Speaker 2: wondering why you're talking about receivables. Shouldn't that be fine?
Speaker 2: In video is a big business. Your business is pretty big, man,
Speaker 2: And it's totally reasonable to believe that a company planning
Speaker 2: to sell sixty three billion dollars of GPUs in the
Speaker 2: next quarter would have ballooning receivables thirty three billion dollars
Speaker 2: in receivables up from twenty seven billion dollars last quarter.
Speaker 2: A growing inventory nineteen point seven eight billion dollars up
Speaker 2: from fourteen point nine six billion dollars in the last quarter.
Speaker 2: That is that is pretty big up. But nevertheless, in
Speaker 2: video's a big asset, heavy business, which means in videos,
Speaker 2: clients likely get decent payment terms to raise their or
Speaker 2: move cash around to get them paid. Okay, everyone, calm down.
Speaker 2: You can go back to bed like my buddy, who
Speaker 2: is nothing like Enron by the way, just said.
Speaker 3: First, growing inventory does not necessarily indicate weak demand. In
Speaker 3: addition to finished goods, inventory includes significant raw materials in
Speaker 3: work in progress. Companies with sophisticated supply chains typically build
Speaker 3: inventory in advance of new product launches to avoid stockouts.
Speaker 3: In Video's current supply levels are consistent with historical trends
Speaker 3: and anticipate strong future growth. Second, growing inventory does not
Speaker 3: indicate customers are accepting delivery without payment. Capability in video
Speaker 3: recognizes revenue upon shipping a product and deeming collectibility probable.
Speaker 3: The shipping reduces inventory, which is not related to customer payments.
Speaker 3: Our customers are subject to strict credit evaluation to ensure collectibility.
Speaker 3: Payment is due shortly after product delivery. Some customers prepay
Speaker 3: in videos. Dso actually decreased sequentially from fifty four days
Speaker 3: to fifty three days.
Speaker 2: Nice dude, You're totally right. It's pretty common for companies,
Speaker 2: especially large ones, to deliver something before they receive cash
Speaker 2: and it happens. I'm being sincere. Sounds like companies are
Speaker 2: paying great, but you know, can you just be just
Speaker 2: a little more specific, like the whole shipping things before
Speaker 2: they're paid things.
Speaker 3: Video recognizes revenue upon shipping a product and deeming collectibility probable.
Speaker 2: Yeah, okay, I thought I heard you out the first time.
Speaker 2: What does deeming collectibility probable mean? You could have just
Speaker 2: said we get paid like ninety five percent of the
Speaker 2: time within two months or whatever, unless it's not like
Speaker 2: ninety five or ninety percent. How often? How often are
Speaker 2: you paid within two months? Most companies don't break this down,
Speaker 2: by the way, But then again, most companies are not
Speaker 2: in Video the largest company on the stock market. If
Speaker 2: I'm honest, nobody else has recently had to put anything
Speaker 2: out that says I'm not Enron, And I want to
Speaker 2: be clear that in Vidia is not like Enron for real,
Speaker 2: though it really isn't like Enron, and jokes aside, bits aside,
Speaker 2: there were very different businesses. They were very different. Indeed,
Speaker 2: is it is very strange though that in Video wants
Speaker 2: somebody to think about how it's nothing like Enron. This
Speaker 2: was technically an internal memo, and thus there is a
Speaker 2: chance its existence was built for only nvidians or short
Speaker 2: sellers or something worried about the value of the stock.
Speaker 2: And we know it's definitely written to try and deflect
Speaker 2: Michael Burry's criticism, as well as a random AI slap substacker.
Speaker 2: It's just weird. It's weird. I don't really know what's
Speaker 2: going on, and I really want to know. Why does
Speaker 2: nvidio need you to know? It's nothing like Enron did
Speaker 2: do something like Enron? Is there a chance that you
Speaker 2: or I may mistakenly say, hey, is in Vidio doing Enron?
Speaker 1: Hey in video? How are you feeling? Yeah?
Speaker 2: Yeah, you had a rough night. You were saying all
Speaker 2: this crazy stuff about Enron. Are you doing okay? No, No,
Speaker 2: I get it. You're nothing like Enron. You said a
Speaker 2: lot of that last night. So why you were sleeping? Yeah,
Speaker 2: you've been asleep sixteen hours. By the way, you were
Speaker 2: pretty messed up. You brought up loosent than puked in
Speaker 2: my sink and tried to scream at my cat. I
Speaker 2: did some digging though, and like, I get it, You're
Speaker 2: nothing like Enron. Enron was breaking the law in video
Speaker 2: is definitely not doing that. But you said you didn't
Speaker 2: use special purpose vehicles recently you did though you are,
Speaker 2: You're not using them like Enron. Enron moved the debt
Speaker 2: around on the SPVs. But you're investing two billion dollars
Speaker 2: in in Elon Musks special purpose vehicle that will then
Speaker 2: use that money to raise debt to buy GPUs from you,
Speaker 2: from you and video that would then be rented to
Speaker 2: Elon Musk. And this is very different to what Enron did.
Speaker 2: I am with you, dude. Don't let the haters keep
Speaker 2: you down. No, I I don't think a T shirt
Speaker 2: that says in video is not like Enron for these
Speaker 2: specific reasons will help you either. Wait wait, okay, look
Speaker 2: one thing, though, you have this theoretical deal lined up
Speaker 2: with Sam Mortman to invest one hundred billion dollars in
Speaker 2: the open AI. And yes, you said in your latest
Speaker 2: that it was actually a letter of intent with the
Speaker 2: opportunity to invest, which doesn't mean anything, got it. And
Speaker 2: the plan was you would lease the GPU's two open
Speaker 2: AI if the deal happens. Now, theoretically, how would you
Speaker 2: go about doing that in video? You'd probably need to
Speaker 2: do exactly the same deal you did with Xai. You
Speaker 2: would you would buy the GPUs from yourself and then
Speaker 2: rent them to open Ai. That's that's a little loosened
Speaker 2: to you. Kind of sounds like vendor financing. And oh
Speaker 2: you mentioned that rook man.
Speaker 3: Unlike Lucent, in Vidia does not rely on vendor financing
Speaker 3: arrangements to grow revenue. In typical vendor financing arrangements, customers
Speaker 3: pay for products over years. In Vidio's DSO was fifty
Speaker 3: three and Q three. In Vidia discloses our standard payment terms,
Speaker 3: with payment generally due shortly after delivery of products. We
Speaker 3: do not disclose any vendor financing arrangement. Let me stop
Speaker 3: you right there. Let me stop you right there for
Speaker 3: a second. You were on about this last night, and
Speaker 3: you scared my cats from you're crying about something called
Speaker 3: two nanimeter. I don't know. First of all, why are
Speaker 3: you bringing up specifically typical vendor financing agreements? Do you
Speaker 3: have atypical ones? Also, I'm jazzed. I guess i'd say
Speaker 3: to hear you disclose your standard payment terms. But what
Speaker 3: standard payment terms? What exactly where can I find those?
Speaker 3: By the way, because you didn't link them, you didn't
Speaker 3: didn't mention them.
Speaker 2: Where are those. And also, look you're saying the words
Speaker 2: you don't disclose any vendor financing arrangements. Those are the
Speaker 2: exact words, though those words are very different to I
Speaker 2: do not have any We do not have any vendor
Speaker 2: financing arrangement. I do not disclose when I go to
Speaker 2: the bathroom, but I absolutely do use the toilet. Let's
Speaker 2: not pretend that Nvidio doesn't have a history in helping
Speaker 2: getting its business buddies funding and Video has deals with
Speaker 2: both Lambda and Core weave to guarantee that they will
Speaker 2: have compute revenue, which they in turn used to raise debt,
Speaker 2: which is then used to buy more in Vidio GPUs,
Speaker 2: you've learned how to feed the day into yourself in video.
Speaker 2: I'm genuinely impressed. This is great stuff. I'm having the
Speaker 2: time of my life with how not like Enron you are.
Speaker 2: And I'm serious that I one hundred percent do not
Speaker 2: believe you are like Enron. But what exactly you doing?
Speaker 1: Man?
Speaker 2: What do you what are you doing to get Wall
Speaker 2: Street what it wants? I'm serious though, seriously, folks, and
Speaker 2: thank you Ben for being in Vidia there in video
Speaker 2: really isn't like Enron, though, it really isn't. And I
Speaker 2: hear a lot of people saying things like, even about
Speaker 2: Sam Morman, I wanted this is a brief rent here
Speaker 2: saying people are going to go to jail. People are
Speaker 2: going to go to prison. There's fraud. There's fraud here,
Speaker 2: Core Weave's doing fraud, this, that and the other. None
Speaker 2: of these companies are doing fraud. That's the world we
Speaker 2: live in. They are doing accountancy, alchemy, They're moving stuff around,
Speaker 2: they are There are ways that in Vidia could be
Speaker 2: doing all of this, and I'm very sure that the
Speaker 2: case perfectly legally. Sam Orban not breaking the law either,
Speaker 2: assuming he's been honest with his investors. Nevertheless, for real, though,
Speaker 2: Invidia is nothing like Enron. Enron was a criminal enterprise,
Speaker 2: and Nvidia is not. More than likely in video is
Speaker 2: doing relatively boring vendor financing stuff and getting people to
Speaker 2: pay them on fifty to sixty day time scales, probably
Speaker 2: net sixty and like it said, it gets paid up
Speaker 2: front sometimes. In Video truly isn't like Enron. After all, Meta,
Speaker 2: Microsoft and Apple are the ones getting into energy trading.
Speaker 2: To the point that I actually think it's time that
Speaker 2: someone explained what exactly happened to Enron with a more
Speaker 2: modern twist, or at least as much as it's possible
Speaker 2: within the confines of a podcast that isn't exclusively about Enron.
Speaker 2: But I'm going to explain next episode what the fuck
Speaker 2: Enron was and you can have some fun listening to it.
Speaker 2: Thank you for listening to Better Offline.
Speaker 4: The editor and composer of the Better Offline theme song
Speaker 4: is Matasowski. You can check out more of his music
Speaker 4: and audio projects at Matasowski dot com, M A T
Speaker 4: T O S O W s ki dot com. You
Speaker 4: can email me at easy at Better Offline dot com,
Speaker 4: or visit better Offline dot com to find more podcast
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Speaker 2: Thank you so much for listening. Better Offline is a
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