Nvidia is currently hiding $5.4 billion of GPU assets from its balance sheet

Nvidia is currently hiding $5.4 billion of GPU assets from its balance sheet and the risk is tied to the entire US economy. Michael Burry, who is the man behind The Big Short, just uncovered the financial engineering behind Nvidia and how AI companies are creating their own demand. But the story actually starts with supply. As chips became the AI bottleneck, Nvidia committed $95 billion of future purchase agreements with suppliers like TSMC, securing their access to future chips and boxing out competitors. Along with other purchase obligations, they actually have $117 billion owed to suppliers, which is equal to the entire company's annual operating cash flow. At this magnitude, it's just very important that demand for Nvidia's GPUs also scales. But on the demand side, it seems like Nvidia is trying to preserve this narrative of infinite organic demand for AI. Last year, Nvidia sold $5.4 billion of GPUs to this company called Valor, but Valor doesn't actually have a product or any employees. They are a shell company that holds the GPUs and leases them to power Grok through a five-year lease to a subsidiary of xAI, which is Grok's parent company. Nvidia immediately booked the revenue. xAI doesn't hold any hardware as a fixed asset on their corporate balance sheets either. This contract's very interesting. Infrastructure tech evolves very quickly, so we would expect the GPUs to be outdated in two years, but these are five-year long leases, meaning xAI is holding contracts that last much longer than the value of the asset. How does a shell company even get $5.4 billion? Valor is actually funded through an SPV. Nvidia put in $1.9 billion, so they're technically funding their own purchaser, and Apollo funded the remaining $3.5 billion through private credit. Apollo packaged the debt into bonds and sold it to Athene, which is their insurance subsidiary that manages retirement accounts for the average American. Athene obviously moved $200 billion plus to Bermuda and is operating with extremely high leverage, half of which is sitting with level 3 assets, which are highly illiquid and have no marketable price. The economy is so interconnected, but Michael Burry actually points out a couple more systemic risks. Receivables are highly concentrated. The last quarterly disclosure showed that just 3 companies make up 64% of Nvidia's accounts receivable. Circular financing distorts Nvidia's revenue quality. This like organic cash rich demand for Nvidia and AI might be much softer than the market realizes. And this is yet another story trying to understand the true demand for AI.