Nvidia (NVDA) sent a memo to Wall Street analysts over the weekend arguing that it is not involved in vendor financing, a controversial practice in which suppliers invest or extend loans to their own customers.
Famous 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 – rejecting claims that it invests in its own customers to raise 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 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 perpetrated by Enron and Lucent.
Enron is known for its accounting manipulation and use of off-balance sheet debt to hide losses in its broadband business during the internet boom. Meanwhile, Internet infrastructure provider Lucent 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 they couldn’t otherwise afford. When the dot-com bubble burst and the telecom startups couldn’t repay Lucent, the company had to write down the revenue related to those transactions and lost billions of dollars.
Chanos, who is famous for predicting the fall of Enron, thinks that the comparison between Nvidia and Lucent carries weight.
“They are [Nvidia is] you put money into companies that lose money so that those companies 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 cloud AI firms, including CoreWeave ( CRWV ) and Nebius ( NBIS ) — and those investments have raised eyebrows on Wall Street.
“NVIDIA does not resemble historical accounting fraud 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 repay suppliers 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 “suspicious revenue recognition” due to investments in its customers.