Nvidia ( NVDA ) sent a note to Wall Street analysts over the weekend saying it is not engaged in vendor financing, a controversial practice in which vendors invest in or make loans to their own customers.
Renowned shortcut sellers Jim Chanos and Michael Burry aren’t so sure.
Nvidia wrote a seven-page document — first reported by Barron’s Tuesday morning — denying claims that it is investing in its own customers to inflate its revenue. The memo was written in response to a newsletter by a little-known substack author last week that claimed the $5 trillion AI chip maker was involved in a “circular financing scheme” — using vendor financing to boost sales — drawing parallels between Nvidia and the infamous dot-com-era accounting frauds perpetrated 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 making loans to many of its loss-making telecom customers — who then used the funds to buy Lucent equipment they otherwise couldn’t have afforded. When the dot-com bubble burst and telecom startups couldn’t pay Lucent back, the company had to write down revenue related to those deals and lost billions of dollars.
Chanos, who is famous for predicting the fall of Enron, believes the comparison between Nvidia and Lucent holds weight.
“They are [Nvidia is] putting money into companies that are losing money to get those companies to order their tokens,” 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 host of cloud AI firms including CoreWeave ( CRWV ) and Nebius ( NBIS ) — and those investments have raised eyebrows on Wall Street.
“NVIDIA is unlike historical accounting fraud because NVIDIA’s core business is economically sound, our reporting is complete and transparent, and we care about our reputation for integrity,” Nvidia wrote in its note, which was obtained by Yahoo Finance.
“[U]Like Lucent, NVIDIA does not rely on vendor financing agreements to grow revenue,” the company continued. Nvidia noted that in typical vendor financing agreements, customers pay vendors over years. Meanwhile, the chipmaker said its customers pay the company within 53 days of 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 that Nvidia is one of several companies in the AI market with “suspect revenue recognition” due to investments in its customers.