Nvidia Rejects ‘Circular Financing’ Claims – Short Seller Heavyweights Push Back

• Nvidia (NVDA) issued a seven-page memo explicitly denying vendor financing, stressing 53-day payment terms and transparent reporting, while distinguishing itself from historical cases like Lucent and Enron.
• Prominent short sellers Jim Chanos and Michael Burry remain skeptical, pointing to Nvidia’s investments in customers such as CoreWeave (CRWV) and the use of off-balance-sheet debt by buyers like Meta (META) and xAI as evidence of circular or suspicious revenue practices.
• Both investors argue the larger risk is catastrophic overbuilding of AI infrastructure ahead of actual demand, warning that delayed adoption could trigger order cancellations as early as 2027 – 2028.

Nvidia (NVDA) has taken the unusual step of issuing a detailed seven-page memorandum to analysts explicitly denying engagement in vendor financing, a practice that contributed to the downfall of companies like Lucent during the dot-com era. The document, circulated over the weekend and first reported by Barron’s, directly addresses accusations that originated in an obscure Substack newsletter alleging a “circular financing scheme” in which Nvidia invests in customers who then turn around and purchase its chips, artificially inflating revenue.

Prominent short sellers Jim Chanos and Michael Burry have publicly expressed skepticism toward Nvidia’s rebuttal. Chanos, widely credited with exposing Enron’s accounting irregularities, told YF that Nvidia is indeed “putting money into money-losing companies in order for those companies to order their chips,” drawing explicit parallels to Lucent’s aggressive customer-financing model in the late 1990s. Burry, in a post on X, described Nvidia as one of several AI-related companies exhibiting “suspicious revenue recognition” tied to equity investments in customers.

Nvidia has made sizable investments in several key buyers of its GPUs, including CoreWeave (CRWV), Nebius (NBIS), and privately held entities such as OpenAI and xAI. The company insists these are strategic minority stakes rather than disguised financing arrangements. In its memo, Nvidia emphasized that its average days sales outstanding remain at 53 days and that it does not extend multi-year repayment terms typical of vendor financing deals. The company further stated that its financial reporting is complete, transparent, and that its underlying business remains economically sound, distinguishing it from historical accounting scandals.

Beyond direct vendor financing concerns, Chanos highlighted the growing role of off-balance-sheet and structured debt in the AI ecosystem. Customers such as Meta (META) and xAI have reportedly employed special-purpose entities and project-finance structures to fund massive GPU purchases, while others, including Anthropic, have relied on more conventional debt. Chanos described the layering of complex credit on top of loss-making AI companies as the “real Achilles heel” of the sector.

Both short sellers argue that accounting questions, while serious, are secondary to a more fundamental issue: widespread over-investment in AI infrastructure ahead of proven end-user demand. Burry has characterized the current build-out as “catastrophically overbuilt supply” reminiscent of the fiber-optic glut of the early 2000s, with billions being spent on chips, servers, and hyperscale data centers before commercial adoption of generative AI has scaled meaningfully. Chanos echoed this view, warning that if projected demand for AI compute in 2027 or 2028 fails to materialize, customers could begin canceling or deferring orders – a risk he believes is underappreciated by the market.

Nvidia counters that demand for its latest-generation chips remains “off the charts” and that it maintains a generational lead over competitors, even as intensifying rivalry from custom silicon developed by Google (GOOG, GOOGL), Amazon (AMZN), and others has contributed to recent share-price volatility. The company has consistently rejected bubble comparisons, pointing to sustained order visibility and the absence of the impaired receivables and write-downs that plagued Lucent two decades ago.

The debate has placed renewed scrutiny on the sustainability of AI capital-expenditure cycles and the extent to which financial engineering may be amplifying reported growth across the semiconductor and cloud sectors. While Nvidia maintains that its practices bear no resemblance to past frauds, the vocal skepticism from two of the most celebrated short sellers in modern investing history ensures that questions about revenue quality and infrastructure overbuild will remain central to the ongoing AI investment narrative.

WallStreetPit does not provide investment advice. All rights reserved.

• Bulenox: Get 45% to 91% OFF ... Use Discount Code: UNO
• Risk Our Money Not Yours | Get 50% to 90% OFF ... Use Discount Code: MMBVBKSM