An AI and analytics researcher says the AI buildout is repeating three financial tactics that sank Enron — moving debt off balance sheets, booking future sales as current revenue, and circular deals that mask real demand. He argues the parallel does not mean the AI boom is headed for the same collapse, though skeptics led by Michael Burry disagree.
Ram Bala, an associate professor of AI and analytics at Santa Clara University's Leavey School of Business, says the AI buildout is replicating three of the financial tactics that brought down Enron — legally, but in a way he says deserves scrutiny. Enron collapsed into bankruptcy in 2001 after it was revealed to be a fraud.
Debt hidden, revenue inflated
Bala, coauthor of "The AI-Centered Enterprise" and cofounder of AI startup Samvid, told Business Insider that Enron's story rested on three practices: shifting debt off its balance sheet through special vehicles, using mark-to-market accounting to book future sales as immediate revenue, and running circular transactions that made customer demand look more independent than it was. He said today's tech giants are using versions of all three.
Private credit takes on Enron's old role
According to Bala, private credit now plays the role Enron's special purpose entities once did — "the place where risk goes to become less visible." He pointed to private equity firms including KKR helping finance the AI buildout, noting that Nvidia gets paid upfront while borrowers and their lenders carry the default risk. Because private credit is funded by ordinary savers through instruments like pension funds, he said, the tail risk lands on households.
Demand forecasts built on models, not markets
Bala said the buildout is being financed against demand curves marked to model, not to market, rather than tested against real market signals. He recalled Anthropic CEO Dario Amodei saying his company has invested less in compute than its rivals, since a small error in demand projections could separate success from bankruptcy.
Circular deals draw Burry's fire
The professor also flagged circular-financing arrangements such as Nvidia investing in OpenAI, which then uses the cash to buy Nvidia's chips — a structure he compared to vendor financing, common in industries with expensive equipment. He said such financing can boost liquidity and generate value, but turns risky when pushed too far amid uncertain outcomes. Investor Michael Burry told his 2 million X followers that history is repeating and urged them to revisit "The Smartest Guys in the Room," the book chronicling Enron's collapse. Bala, however, said he believes long-term demand for AI will justify the industry's current financial strategies.
Source: Business Insider
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