Nvidia disputes AI revenue ties as short sellers question demand

Nvidia told Wall Street analysts in memo that it does not use vendor financing to increase sales of its AI chips, responding to a recent newsletter that accused the company of a circular financing scheme and compared it to Enron and Lucent.

In a seven-page document, the chipmaker denied funding or lending to buyers to inflate revenue and described its business as driven by demand and standard payment terms. The memo stated that NVIDIA did not resemble historical accounting frauds because its underlying business was economically sound, its reporting was complete and transparent, and it cared about its reputation for integrity.

The company noted that typical vendor financing involves customers paying suppliers back over years, while its customers pay soon after purchase. Jim Chanos, known for flagging problems at Enron, questioned the distinction because of Nvidia’s investments in companies that buy its chips. 

He pointed to stakes or funding involving OpenAI, Elon Musk’s xAI, and AI infrastructure firms such as CoreWeave and Nebius. In an interview, Chanos argued: 

They’re putting money into money-losing companies in order for those companies to order their chips.

Michael Burry, who profited from betting against the housing market before the 2008 crisis, raised similar concerns. He wrote that parts of the AI market show “suspicious revenue recognition” tied to supplier investments in customers and warned of “catastrophically overbuilt supply and nowhere near enough demand.”

Both investors emphasized that accounting is only part of the concern, pointing to heavy spending on AI data centers and hardware before clear commercial usage. Chanos cautioned that if utilization lags in the next few years, chip and data center orders could be reduced or canceled.

Nvidia has countered that demand for its accelerators remains “off the charts” and that its products are a generation ahead of rivals. The company projects continued strength in orders from cloud providers, large internet platforms, and startups training and deploying generative AI models.

Vendor financing refers to a supplier funding or lending to a customer so the customer can buy the supplier’s products. During the late 1990s, Lucent extended credit to many loss-making telecom firms that then bought its equipment; when those companies failed, Lucent recorded large write-downs. 

Enron used off-balance sheet arrangements to mask debt and losses in its broadband and other businesses before collapsing in 2001. Nvidia contends its operations differ from those cases and maintains that it does not depend on customer financing to drive growth.

As we reported earlier, Nvidia CEO Jensen Huang warned the U.S. could lose its AI lead to China because energy for data centers is cheaper there thanks to state subsidies and because regulation is lighter.