Legendary Tech Investor Says “Every Single One of the Big Players Is Doing It”

Why It Matters

The practice inflates earnings and valuations, exposing investors and regulators to hidden financial risk if the circular deals unwind.

Key Takeaways

• Circular deals let firms book revenue without cash inflow.
• Auditors failed to flag cashless revenue structures in tech deals.
• Microsoft‑OpenAI credit arrangement exemplifies balance‑sheet manipulation and cashless revenue.
• Nvidia’s valuation constrained by customer concentration and trust deficits.
• Industry‑wide circular financing threatens future unwinding and instability.

Summary

Legendary tech investor warns that “circular deals” let major technology firms record revenue without any cash inflow, effectively moving money off the balance sheet. He cites the Microsoft‑OpenAI credit arrangement as the archetype, where Microsoft receives equity for cloud credits that generate “cashless revenue” on its income statement.

The investor argues auditors missed these structures, allowing companies to book revenue while the underlying cash never materializes. He links this practice to Nvidia’s stalled multiple, suggesting that customer concentration and mistrust among rivals stem from these opaque financing arrangements.

Key quotes include, “The circular deals are horrific,” and “You shouldn’t be able to move cash from your balance sheet and create revenue on your income statement.” He emphasizes that every major player engages in such deals, creating systemic risk if unwound.

If unchecked, these accounting tricks could distort valuations, invite regulatory scrutiny, and trigger a cascade of restatements, forcing investors to reassess risk exposure across the tech sector.

Original Description

Legendary tech investor says “every single one of the big players is doing it”

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