Over the weekend, chipmaker Nvidia (NVDA) sent Wall Street analysts a memo pushing back against claims that it engages in “vendor financing,” which is a controversial practice where a company invests in or loans money to its customers so they can buy more of its products. Nvidia strongly denied these allegations after they drew comparisons to past accounting scandals involving Enron and Lucent. More specifically, Nvidia responded with a detailed seven-page document where it insisted that its business model is sound and transparent, and that it does not rely on vendor financing to drive revenue.
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Nevertheless, these comparisons have attracted the attention of famous short sellers like Jim Chanos and Michael Burry. According to Yahoo Finance, Chanos, who is known for calling out Enron, believes that Nvidia is investing in money-losing companies just so those companies can purchase more Nvidia chips, similar to what Lucent did during the dot-com bubble. Indeed, Chanos sees similar warning signs in Nvidia’s partnerships with companies like CoreWeave (CRWV) and Nebius (NBIS).
Meanwhile, Burry, who predicted the 2008 housing crash, went even further by claiming that several AI firms, including Nvidia, are showing “suspicious revenue recognition” because of these kinds of customer investments. However, Nvidia maintains that its business is fundamentally different from the scandals of the past. The company states that its customers pay for chips within 53 days, unlike vendor financing deals that stretch for years. It also says its financial reports are transparent and accurate.
Chanos Is Concerned about How Debt Is Entering the AI Industry
Still, Chanos is concerned about how debt is entering the AI industry and noted that companies like Meta (META) and xAI (PC:XAIIQ) may be using off-balance sheet financing to buy chips. He warned that this layering of complex debt on unprofitable companies could become the AI market’s Achilles heel.
Burry also warned of overbuilding by arguing that the AI market is being flooded with chips and data centers before real demand is proven. While Nvidia insists that demand for its chips is “off the charts,” Chanos fears that if expected demand doesn’t materialize by 2027 or 2028, mass order cancellations could follow, which is something not enough investors are currently thinking about.
What Is a Good Price for NVDA?
Turning to Wall Street, analysts have a Strong Buy consensus rating on Nvidia stock based on 39 Buys, one Hold, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average Nvidia price target of $257.26 per share implies 42.3% upside potential.
