Michael Burry Calls Elon Musk-Nvidia AI Deal 'Fugazi' — Warns Retirees of Hidden Risks

The Big Short's Michael Burry is known for winning big from betting against the US real estate market during the 2008 global financial crisis. He recently shuttered his hedge fund on AI bubble fears, disclosing massive bets against AI leaders like Nvidia and Palantir Technologies.

While he has been ramping up stake in beaten-down stocks recently like Mercado Libre and Adobe, Burry continues to criticise companies like Nvidia as well as Elon Musk's ventures for using accounting tricks to bolster their balance sheets.

Burry warned in a recent post on Substack that leading companies like Nvidia and Elon Musk's xAI are leveraging GPU-backed securities deal structures to secure funding to power their growing AI data centres while putting the retirement funds of Americans at risk.

Burry detailed in his post the exact pipeline that moves retiree savings into the running Musk's AI data centres without them knowing about it, describing such deals as 'fugazi', his word for fake.

Nvidia's $5.4B GB200 GPU Deal

Burry highlighted that Nvidia sold $5.4 billion in GB200 GPUs to a shell company called Valor and had booked the deal as revenue. This way, the chips are gone from the balance sheet. However, Valor happens to be a special purpose vehicle whose purpose is to hold legal title to over 100,000 chips and is not a real business.

Nvidia also invested $1.9 billion of its own equity into Valor as a limited partner, selling GPUs to the company it financially supported. Meanwhile, xAI is using all 100,000 Nvidia chips to run Grok but owns none of them on paper. So, what Nvidia did was invest $1.9 billion in Valor and subsequently recognised $5.4 billion from selling GPUs back to that same entity.

Meanwhile, Apollo Group also structured a $3.5 billion debt for the Nvidia-xAI deal, packaged them into securities, and sold them to its own insurance company Athene, which is known for selling fixed and indexed annuities to American retirees. This insurance subsidiary now holds the massive debt issued for the multi-billion dollar deal by Apollo.

Routing Funds Beyond US Oversight

Burry highlighted that Athene routed $217 billion in assets to captive insurers in Bermuda like Athene Annuity Re Ltd., which are outside normal US insurance oversight and regulation. This implies that the ultimate risk rests with US retirees dependent on steady returns from their annuity investments.

While American retirees believe they hold annuities in safe, stable investments, $103 billion of Athene's portfolio is classified as Level 3 assets with no observable market price or independent verification. Additionally, the leverage ratio is 16.6x on top of the $103 billion in assets.

However, none of this shows on Nvidia or xAI's balance sheet. In all, Nvidia books the revenue, Apollo collects the fees, and xAI receives the computing power while retirees carry the risk without knowing it exists.

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