Nvidia (NVDA) sent a memo to Wall Street analysts over the weekend arguing that it is not engaged in vendor financing, a controversial practice in which suppliers invest in or extend loans to their own customers.
Famed short sellers Jim Chanos and Michael Burry aren’t so sure.
Nvidia wrote a seven-page document — first reported by Barron’s on Tuesday morning — rebuffing claims that it invests in its own customers to inflate its revenue. The memo was written in response to a newsletter from a little-known Substack author last week claiming that the $5 trillion AI chipmaker is engaged in a “circular financing scheme” — using vendor financing to boost sales — drawing parallels between Nvidia and famous dot-com era accounting frauds committed by Enron and Lucent.
Enron is notorious for manipulating its accounting and using off-balance sheet debt to hide losses in its broadband business during the internet boom. Internet infrastructure provider Lucent, meanwhile, is best known for aggressively investing in and extending loans to many of its loss-making telecom customers — who then used the funds to buy Lucent equipment that they couldn’t have otherwise afforded. When the dot-com bubble burst and telecom startups couldn’t pay back Lucent, the company had to write down revenue tied to those transactions and lost billions of dollars.
Chanos, who is famous for predicting the fall of Enron, thinks the comparison between Nvidia and Lucent bears weight.
“They’re [Nvidia is] putting money into money-losing companies in order for those companies to order their chips,” Chanos told Yahoo Finance in an interview.
Nvidia has invested heavily in its own customers — from ChatGPT developer OpenAI (OPAI.PVT) to Elon Musk’s xAI (XAAI.PVT) to a slew of AI cloud firms, including CoreWeave (CRWV) and Nebius (NBIS) — and those investments have raised eyebrows on Wall Street.
“NVIDIA does not resemble historical accounting frauds because NVIDIA’s underlying business is economically sound, our reporting is complete and transparent, and we care about our reputation for integrity,” Nvidia wrote in its memo, which was obtained by Yahoo Finance.
“[U]nlike Lucent, NVIDIA does not rely on vendor financing arrangements to grow revenue,” the company continued. Nvidia noted that in typical vendor financing agreements, customers pay back suppliers over years. Meanwhile, the chipmaker said its customers pay the company within 53 days after purchasing its chips.
Burry, the “Big Short” investor who predicted the collapse of the US housing market in 2008, went further than Chanos in a post on X last week, saying Nvidia is one of multiple companies in the AI market with “suspicious revenue recognition” due to investments in its customers.
