Michael Burry's thesis is that aggressive stock-based compensation (SBC) at companies like Nvidia significantly distorts their valuations. By treating SBC as a true owner's cost, a stock appearing to trade at 30 times earnings might actually be closer to 60 times, mirroring dot-com era accounting concerns.

To combat accounting allegations from investors like Michael Burry, NVIDIA's investor relations team sent a private 7-page memo to Wall Street analysts. This direct refutation, explicitly stating "NVIDIA says it's not Enron," reveals a high level of concern over market narratives, even for a financially dominant company.

Enron convinced regulators to let it use "mark-to-market" accounting for illiquid assets like pipelines. This allowed them to book highly subjective, projected profits from long-term deals as immediate earnings, creating a facade of profitability that had no basis in actual cash flow.

During the bubble, a lack of profits was paradoxically an advantage for tech stocks. It removed traditional valuation metrics like P/E ratios that would have anchored prices to reality. This "valuation vacuum" allowed investors' imaginations and narratives to drive stock prices to speculative heights.

The dot-com era was not fueled by pure naivete. Many investors and professionals were fully aware that valuations were disconnected from reality. The prevailing strategy was to participate in the mania with the belief that they could sell to a "greater fool" before the inevitable bubble popped.

The supposed "research" from Wall Street analysts was compromised by cronyism. Analysts often functioned as promoters for companies their firms held as clients, attending plush conferences to "toot client stocks." Their compensation was tied to generating banking business, not providing accurate analysis for investors.

A 1994 law discouraging shareholder lawsuits created a sense of diminished risk for executives and accountants. This regulatory shift fostered a permissive climate where misleading financial reports and accounting fraud could flourish with fewer perceived legal consequences, directly contributing to the bubble.

Analysts exhibit a predictable pattern: they issue overly optimistic long-term earnings forecasts to maintain good relationships with management, then gradually reduce them as the announcement nears. The final forecast is often slightly pessimistic, setting a low bar for companies to easily "beat," making the process a rigged game.

WeWork created "Community Adjusted EBITDA," a metric that conveniently excluded core costs like rent and salaries. This farcical KPI incentivized top-line growth at any cost, masking massive unprofitability and ultimately destroying shareholder value. Be wary of overly creative accounting.