Nvidia is, in crucial ways, nothing like Enron – the Houston energy giant that imploded through multibillion-dollar accounting fraud in 2001. Nor is it similar to companies such as Lucent or Worldcom that folded during the dotcom bubble.
But the fact that it needs to reiterate this to its investors is less than ideal.
Now worth more than $4tn (£3tn), Nvidia makes the specialised technology that powers the world’s AI surge: silicon chips and software packages that train and host systems such as ChatGPT. Its products fill datacentres from Norway to New Jersey.
This year has been an exceptional one for the company: it has struck at least $125bn in deals, ranging from a $5bn investment into Intel – to facilitate its access to the PC market – to $100bn invested in OpenAI, the startup behind ChatGPT.
But even as those deals have fuelled surging stock prices and paved the way for chief executive Jensen Huang’s energetic world tour, doubts have emerged about how Nvidia does business, especially as it has become increasingly central to the health of the global economy.
The start of these concerns has been the circular nature of many of its deals. These arrangements resemble vendor financing: Nvidia lending money to customers so they can buy its products.
The largest of these is its deal with OpenAI, which involves Nvidia investing $10bn into the company each year for the next 10 years – most of which will go to buying Nvidia’s chips. Another is its arrangement with CoreWeave, a company that provides on-demand computing capacity to big AI firms, essentially leasing out Nvidia’s chips.
The circularity of these deals has drawn comparisons with Lucent Technologies, a telecoms company that also aggressively lent money to its customers, only to overextend itself and unravel in the early 2000s. Nvidia has aggressively rebutted suggestions of any similarity, saying in a leaked recent memo that it “does not rely on vendor financing arrangements to grow revenue”.
James Anderson, a renowned tech investor, describes himself as a “huge admirer” of Nvidia, but said this year that the OpenAI deal presented “more reason to be concerned there than before”.
He added: “I have to say the words ‘vendor financing’ do not carry nice reflections to somebody of my age. It’s not quite like what many of the telecom suppliers were up to in 1999-2000, but it has certain rhymes to it. I don’t think it makes me feel entirely comfortable from that point of view.”
Other high-profile recent deals include the tech firm Oracle spending $300bn on datacentres for OpenAI in the US – with the ChatGPT developer then paying back roughly the same amount to use those datacentres. In October, OpenAI and the chipmaker AMD signed a multibillion-dollar chip deal that also gave OpenAI the option to buy a stake in the Nvidia rival.
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