DO NOT BUY STOCKS! (Michael Burry’s Final Warning)

What's up you guys, it's Graham here. So we got something crazy going on in the stock market that apparently is going to impact a lot of people. And it all has to do with fake numbers, Ghazi, and believe it or not, Michael Burry. It all started with this tweet that I'm going to be referencing, I'll read through it, because it went incredibly viral, it's gotten millions of views, and it's quite alarming. So according to Michael Burry, he's alleging that billions of dollars in Nvidia chips are being hidden off the balance sheets, and that American retirees are unknowingly funding the whole thing. A quick side tangent here, but we've all seen this circular financing going on in the stock market. I'm going to put it up on screen here. It's incredibly confusing, but basically one company is like working with another and they're lending each other money and then setting up other companies to lend that company money, which then funds other projects. And some of it is just like creative accounting, where to structure certain deals certain ways for tax advantages, they got to do this. But this deal, on the other hand, is just as confusing. So let me explain it. They say that Nvidia, who's the world's largest AI chip company, sold 5.4 billion worth of its most advanced GPUs to a company called Valor. It's important to note that Valor is not actually like a real company. It's what these businesses set up as somewhat like a shell so they could distance themselves for tax purposes. They're not putting it on their own books. It's basically like you saying, oh, I'm going to create this LLC and that LLC technically owns the assets. I don't own the assets. The LLC does. So in a way, that's what they did. The purpose of this, like I said, is to be buying all these GPUs. And Nvidia invested 1.9 billion of its own money directly into this company on top of the sale. Now, in terms of who's using these chips, it's all XAI. It's Grok. So when you're talking to Grok, what you're really using is like a whole bunch of these GPUs that were set up and funded specifically for this purpose. And this is important because, again, it all kind of circles back at the end. Now, Burry is alleging that a lot of these numbers are fake. See, the thing is, neither Nvidia nor XAI owned those chips on paper. Valor, the shell company, holds legal title. This means that 5.4 billion in GPU assets do not show up in Nvidia's balance sheet as inventory. They also don't show up on XAI's balance sheet as assets. They're invisible to both companies. Again, because they set up this LLC, so to speak, that holds all the assets. And then what happens is really interesting. Nvidia gets to book the 5.4 billion as a completed sale and record it as revenue. XAI gets full use of the chips without owning them. And the risk disappears into a shell company in the middle. Again, it's kind of like me saying that, you know, I have my own assets. I have my own bank account that I use for like personal checking and savings. And then this computer here is actually owned by my LLC, my business. So this is a business computer that I use specifically for running a business, even though me personally, I could use this computer for business purposes. So the computer is not on my books. It's on the business's books. Now, in terms of where some of the risk is for everyday investors and retirees and people who don't want anything to do with this, but are kind of left without any other choice. Michael Burry says that Valor needed three and a half billion in debt to fund this structure. Apollo provided it. And they're one of the largest asset managers on Earth with a trillion dollars under management and eight hundred and thirty four billion specifically in private credit. So what Apollo did is that they raised three and a half billion dollars from investors. They packaged it into securities and then they sold that to a company called Athene. Now, Athene is the insurance company that Apollo had set up and it sells fixed and indexed annuities, retirement savings products and all of this to ordinary Americans. That means that when a retiree buys Athene, they believe their money is sitting in safe, stable investments. But that money is now inside a structure funding Elon Musk's A.I. data center. Here's where Michael Burry says is the risk. Athene holds seventy four billion dollars in reserves, but it's moved two hundred billion dollars in assets into a captive insurer based in Bermuda, meaning those assets sit outside of normal U.S. insurance regulation. Now, Burry says that every step of this structure is technically legal and publicly disclosed, but the entire thing was deliberately engineered across eight to 12 steps to move credit risk off balance sheets and away from any market pricing. Or in this case, NVIDIA books the revenue, Apollo collects the fees, X.A.I. gets the computing power and retirees are sitting at the bottom of a 16X leveraged Bermuda insurance structure holding one hundred billion dollars in assets with no market price that retirees don't know they're getting into. Now, again, if you're confused by this whole thing, the setup is that basically X.A.I. needs a whole bunch of GPUs to run. But if they were to go and buy those GPUs, it's very expensive. They don't know if they're going to need to upgrade these chips over time. So what they do instead is they rent them. So what NVIDIA does is say, hey, we're going to set up a company for you to be able to rent from this company so that you can use all the chips that you need to without actually buying them yourself. So NVIDIA and X.A.I. and all these companies get together and they go and they set up this other company that holds the chips and holds everything needed. X.A.I. could rent from that company, NVIDIA could fund that company, and then they could bring in outside investors who just want a safe, stable return on their money, kind of like buying a real estate building, except X.A.I. is just renting what's inside that real estate building. And then what they do is once they have that deal structured, let's just say it pays 10 percent a year for 10 years. Just as an example, they could then go and package that, sell it off to an insurance company, and then that insurance company goes and they say, oh, well, now we have this product that makes 10 percent a year. We're going to be giving this to people who want a safe, stable return on their money. We could sell it out. And that's where everyday investors get looped in. And if everything goes well, they get a safe, stable return on their money backed by GPU chips in a very high demand sector. That's really all that's going on here. And the benefit for X.A.I. They get to rent them. NVIDIA gets to make a whole bunch of chips and book a big sale. And investors, again, if everything goes well, just get a return on their money. Now, before I break this down even further, there is a rebuttal that I saw here that I do want to go over because it wouldn't be fair just to show one side, not the other. And really quick, I just want to say that when it comes to the markets and everything that's going on and rising prices on top of that, one of the places that I feel it personally is just when it comes to food. Like when I go and get a meal, all of a sudden it's 20, 25 dollars, 30 dollars for food that just tastes meh. Thankfully, though, it doesn't have to be that way. Food does not have to be insanely expensive or taste mediocre, all thanks to our sponsor, CookUnity. No joke. This has been my go to food for years. 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So according to this guy, OX Sammy, he's worked as a big four auditor for a decade. The transaction is real and the figures check out. All of this was publicly disclosed. But Michael Burry's thread oversells two things. On NVIDIA's revenue, selling it to a special purpose vehicle like that middleman company is totally fine. The question is that whether or not control is actually transferred. If the middleman company bears the risks and rewards, NVIDIA books the sale legitimately. The real issue, though, is because NVIDIA invested in that middleman company one point nine billion dollars, if they're counting that in the five point four billion dollars of revenue that they say they received, well, that's kind of like just paying themselves. So in reality, their revenue should or might be more like three and a half billion. Now, you know, again, we're talking five something billion, three something billion. It's still a lot of money. But again, if you're counting that as a sale, then that's not quite a sale. It's like me saying that, you know, I sold this coffee to myself. So I charged myself ten dollars for this coffee and, you know, I put five dollars in. I can't say that I made ten dollars selling this coffee because five of the dollars I just like kind of paid for the coffee. But I own the coffee. So it doesn't quite work like that. So if that is the case, then, yes, this could be a bit overstated. Now, when it all comes to this, I got to say is a dude who's like weirdly obsessed with like deal structure like this. That's really complicated that no one understands. A lot of it to me is just like clever accounting where they're trying to get stuff off the books and they're trying to optimize this, because the biggest issue that I see is that these chips that are used for computing AI age really fast. It's kind of like buying a brand new iPhone, knowing that three years from now it's going to be selling for like 40 percent of the price. It's going to be way slower. There's going to be all these new features that come out with the way things are going right now, two years from now, like all these chips could be completely irrelevant. And for XAI, they don't want to like buy these chips that are depreciating so quickly because they lose value. Now, there is a chance, of course, that the chips don't advance as quickly as we think and they hold more value. But realistically, it's kind of like buying an iPhone. It's going to be worth less than a few years because guaranteed a better iPhones is going to come out. So for XAI, it makes sense to want to rent these chips instead. For NVIDIA, it makes sense that they just want to pump out as many of these chips as possible because it helps their bottom line, too. And for the retirees, you know, yes, they're investing a portion of their pension in something like this. But then the risk really becomes, is XAI going to stop paying on these GPUs? Is that middleman company going to go bankrupt? Let's just say then they do. What is the value of those GPUs? 50 percent, 60 percent, 70 percent. That's why I think the chance of a total loss with that is probably not going to happen. It can't be a total loss because the GPUs are probably going to hold some amount of value. Again, it's like, you know, the iPhone, like even the iPhone 5 still has some level of value. Someone's still using the thing. It's not ideal, but it's still it's not going to sell for zero. It's not like you have to pay someone to take off the iPhone from you. So it's always going to have value. Realistically, XAI is only going to expand and they're going to keep making money. And so my guess is that the realistic risk for retirees is there. It's not zero, but it's also not going to be like this scenario where we're walking into something that like obviously is going to hit a wall at some point. As of now, we don't know when that wall might may be or if there is even a wall to begin with. Now, also keep in mind that Athene, the insurance company, is also huge. So them investing three and a half billion dollars actually kind of pales in comparison to the amount of assets they have, which is over four hundred billion dollars. So that's why when you look at this in the big picture, it's kind of like investing one percent of your net worth or your investable assets into a deal. And if that one percent doesn't do that well, well, then you got 99 percent to fall back on. And again, that chance of the one percent going to zero, probably not going to happen. It's probably get, you know, worst case, maybe lose half. But even if it loses half, you got ninety nine point five percent of your other investments that should be working for you. Like this could be a bucket and a bigger category. And then you have a whole bunch of other stuff that you could use if you need it. That's why I think that we have three realistic scenarios for this. We have what we call the best case scenario is that XAI makes a ton of money. They rent these chips for a very, very long time. Investors make an even better return on their money. This whole middleman company keeps growing, gives investors even better returns. Twitter wants, you know, even more GPUs. And the whole deal just continues to grow. That's the best case scenario. The realistic scenario is that these GPUs slowly lose their value. But XAI just keeps paying them. And that just means that investors get the returns that they've been promised, that they're stated that, you know, XAI has enough money, enough users to keep this deal going. AI demand is going to remain just as robust over the next few years. And really nothing happens. It's a bit of a concern. Michael Burry kind of shocks the market, but long term, everything just kind of turns out as planned. The worst case scenario is that these chips lose a ton of value because they're progressing so fast. XAI is not making as much money as they thought they would. They have trouble paying the rent, leasing these machines out. Maybe they stop. And then all of a sudden, there's a glut of these GPUs that maybe a lot of people don't want to take over. Maybe they don't want them. So XAI stops paying the rent on those. And then the retirees, the investors, the pensions, all of a sudden they take a hit and a portion of their investment loses money. And again, as long as the AI train keeps going, they're going to keep expanding. And just the way I see it, AI demand is probably going to just continue growing from now, even if the market seems to fall off a cliff or something. I just think development is just getting started. This is probably going to keep going. But that is the biggest risk that I see is just like if everything goes to crap, then a portion of the fund also goes to crap. And then it also depends what else they're investing in beyond this that I have no clue on. So in terms of all of this, please let me know what you think down below in the comments section. I will do my best to read and respond to as many of you as I can. And also, don't forget, hit the like button, subscribe. Don't forget to check out our sponsor, CookUnity, down below in the description. I genuinely love the food. They're so good. So if you want to make me happy and your stomach happy, check out CookUnity, get 50 percent off with the code Graham50 at checkout. You may as well do that for the first one because it's 50 percent off. So just enjoy that. Thank you so much. And until next time.