Key Points
- Nvidia sent a memo denying it uses vendor financing to boost sales. Critics compared Nvidia to dot-com failures Enron and Lucent.
- Jim Chanos claims Nvidia invests in money-losing customers who then buy chips.
- Michael Burry warns that the AI market is overbuilt with weak demand.
- Nvidia insists customers pay quickly and that business is legitimate.
Nvidia is on the defensive. Over the weekend, the chip giant sent a seven-page memo to Wall Street analysts to kill a growing rumor: that it is secretly paying companies to buy its own products. This practice, known as “vendor financing,” destroyed companies like Enron and Lucent during the dot-com bust. Now, critics are asking if Nvidia is doing the same thing to inflate its massive $5 trillion valuation.
The drama started after a newsletter claimed Nvidia runs a “circular” scheme. The theory is that Nvidia invests in startups—like CoreWeave or OpenAI—and those startups immediately turn around and use that cash to buy Nvidia chips.
Jim Chanos, the investor who famously predicted Enron’s collapse, believes there is truth to this. He told Yahoo Finance that Nvidia is effectively propping up money-losing businesses just to keep its own order books full.
Nvidia firmly rejects this. In their memo, they argued that their business is solid and honest. They pointed out a key difference: while companies like Lucent waited years to get paid, Nvidia collects its cash in about 53 days. They insist they do not need accounting tricks because demand for their AI chips is real and “off the charts.”
However, Michael Burry, the “Big Short” investor, sees red flags. He warned that the AI market looks like a bubble, with “suspicious revenue” and way too many data centers being built for customers who do not yet exist. Chanos agrees, noting that many of Nvidia’s customers are using complex debt structures to afford these expensive processors.
Both investors fear the industry is building too much, too fast. If the demand for AI software does not catch up to the massive supply of hardware by 2027, orders could vanish overnight. While Nvidia claims it is a generation ahead of the competition, these Wall Street veterans are betting that the hype has finally detached from reality.
