Does the AI Boom Look Like Enron? An Expert Says: 'This Isn't a Collapse Yet'

Today's tech giants are using financial tactics that echo Enron's, but that doesn't mean they're headed for a crash, according to an artificial intelligence expert. Enron, an energy supplier and trading giant, went bankrupt in 2001 after its fraud was exposed. Ram Bala, associate professor of AI and analytics at Santa Clara University's Leavey School of Business, breaks the story down in a letter to Business Insider along three key lines: the company moved debt off its balance sheet through special-purpose financial vehicles, used mark-to-market accounting that booked projected future sales as immediate revenue, and used round-trip deals to make customer demand look more independent than it really was.

In Bala's view, the AI buildout is replaying versions of all three tactics — entirely legally — and that is precisely why they deserve attention. He is a co-author of "The AI-Centered Enterprise" and the co-founder and chief product and AI officer of the AI startup Samvid.

Private credit, Bala says, now plays the role Enron's special-purpose entities once did — it is "where risk becomes invisible." Describing how private equity firms such as KKR finance the AI buildout, he says: "Nvidia gets paid up front, while the borrowers and their lenders carry the default risk — and because private credit is ultimately funded by ordinary savers through vehicles like pension funds, the hidden risk lands on ordinary households."

On demand forecasting, Bala argues that the current buildout is "being financed on demand curves fitted to the model rather than to the market." He points to Anthropic CEO Dario Amodei's remark that his company has invested less in compute than its rivals because a small error in demand forecasting can be the difference between success and bankruptcy: "When the smartest people in the room are that candid about forecast volatility, lenders betting on the optimistic scenario ought to give us all pause."

As for circular financing deals — Nvidia investing in OpenAI, which then spends the money on Nvidia chips, for example — Bala says they can be read as vendor financing, a common practice in capital-intensive industries: from a consumer's perspective, it resembles leasing a car financed by the manufacturer itself. Such financing can boost market liquidity and create value, but it "can become dangerous when done in excess and with unpredictable outcomes." Critics such as investor Michael Burry, best known as a central figure in "The Big Short," argue that "the math doesn't match the risk" — Burry told his 2 million followers that "history is repeating itself" and recommended rereading "The Smartest Guys in the Room," the account of Enron's rise and fall.

Even so, Bala believes this boom is "different from past bubbles" and expects long-term demand to justify tech companies' current financial strategy — though, as he puts it, "only time will tell who is right."