Episode Details

I want to highlight that the content you should focus on is the interview of Anthony below on the The Knowledge Project Podcast. I have included both the podcast and YouTube formats for your pleasure.

The video companion at the top of the page is an AI NotebookLM generated summary with a 7 min runtime, if you do not have 93 minutes to listen to the entire interview.

We have all seen the diagram by Bloomberg on the current AI circle jerk.

(Update Oct 30 8:51am NY)

Everyone has heard of Nvidia’s circular transactions with OpenAI. At Veritas Investment Research, we have identified another 80-100 circular deals of Nvidia’s.

Our Special Situations Analyst Ben Butler, CFA, CPA Butler has done some great digging on Nvidia (see the snapshot below from his report to our clients a few days ago), continuing some of the work we’ve done on its circular transactions and accounting in the AI industry over the past three years. We concluded that the circularity of cash flows is now more material, more widespread, and much more conspicuous.

In my view, few investors are looking closely at NVDA’s accounting because it is all about growth. For the accountants out there, let’s just say that ASC606 and ASC323 may get in the way of growth expectations. If you know me, you know I’ve said this before - Nothing matters until it matters and when it matters, it matters a lot.

I won’t give too much away but my summary is simple. No one wants to be the party pooper while everyone is making money, and everyone’s making money. There are many components present that are very similar to Nortel and the networking expansion days of the dot com bubble. Anthony is not calling for a crash. He is simply pointing to the climate (windy conditions) we are in, and the flammable components (dry vegetation) present in the AI vendor financing merry go round.

It doesn’t matter until one day it might!

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The below was prepared by NotebookLM

Briefing Doc

The Coming Collapse? Insights from Forensic Accountant Anthony Scilipoti

Executive Summary

This document synthesizes the core insights and warnings from forensic accountant Anthony Scilipoti regarding the current state of equity markets, the AI boom, and the enduring principles of financial analysis. Scilipoti, who previously predicted the collapses of Nortel and Valiant Pharmaceuticals, identifies a period of “extreme euphoria” where investors dismiss fundamentals, echoing the dot-com bubble. The central argument is that while risk in the market is exceptionally high, it is being priced at historically low levels, evidenced by the tightest high-yield bond spreads and a benign VIX.

A key focus is the AI sector, where Scilipoti sees familiar warning signs of circular financing and investment structures reminiscent of the Nortel era. Companies like Nvidia and Microsoft are investing in their own customers (e.g., OpenAI, CoreWeave), creating an interconnected and potentially fragile ecosystem where sales growth is fueled by their own capital. These intricate relationships often lack full transparency, as individual transactions may not be material enough to warrant detailed disclosure for corporate giants.

Scilipoti is highly critical of the reliance on AI for financial analysis, framing it as a tool that accelerates information retrieval but cannot replace human judgment, experience, or the ability to form “mental models.” He warns that over-reliance on AI risks creating a generation of analysts who know the numbers but not what t