Gurley calls circular deals horrific and says auditors should not have approved them.
“I think the circular deals are horrific. I don't think the auditor should have approved them. And I think whenever you eventually have an unwinding, they're gonna make it worse because they won't be sustainable.”
Gurley criticizes circular deals where companies convert cash to revenue, saying all major AI players do it.
“You shouldn't be able to move cash from your balance sheet and create revenue on your income statement. I just don't think that should be okay. But they're all doing it.”
Gurley says ChatGPT compared circular AI deals to WorldCom and Enron when given deal structures.
“I just explained the structure of them to chat GPT, and I would encourage anyone to go do this like it's a exercise anyone could do.”
Gurley says ChatGPT unprompted compared AI circular deal structures to WorldCom and Enron when he described them.
“And it immediately started talking about WorldCom and Enron unprompted by me. I just said, what do you think about these types of structures?”
Gurley fed AI descriptions of abnormal AI transactions and it flagged patterns similar to Enron and WorldCom.
“And I just described those things to CHIGBT and ask it for its analysis both as an accountant and as a financial investor.”
Gurley criticizes Microsoft-OpenAI deal where credits become revenue without cash changing hands.
“That's a rev that's a cashless transaction. Like, there's no cash, but it becomes an income statement revenue item for Microsoft.”
Gurley argues Microsoft's in-kind OpenAI investment creates cashless revenue on income statements, which is not economically ideal.
“That's a rev that's a cashless transaction. Like, there's no cash, but it becomes an income statement revenue item for Microsoft. And I don't think that's ideal from an economic standpoint.”
Gurley identifies Meta agreeing to cover debt failure without owning the debt as classic off-balance-sheet financing.
“Meta agreed to pay for the failure of debt on a facility where they don't own the debt. You know? And to me, that's classic off balance sheet financing.”
Gurley says cloud credit investments use balance sheet to drive income statement, which should be prohibited.
“Well, yeah. I mean, a big skeptic would say you're using your balance sheet to drive your income statement, which should be a no no.”
Gurley uses hypothetical Ultra Hosting Company to illustrate how credits-as-investment creates revenue without real customers.
“They built a big server farm and their only customers they have are companies that they went out and gave credits away to as a form of investment.”