Nvidia insists it isn't Enron, but its AI deals are testing investor faith

Core Insights - Nvidia is fundamentally different from companies like Enron and Lucent, but it has felt the need to clarify this to investors, which is not ideal [1] - Nvidia's market capitalization has surpassed $4 trillion, driven by its technology that supports the AI boom, including silicon chips and software for systems like ChatGPT [2] - The company has secured at least $125 billion in deals this year, including a $5 billion investment in Intel and a $100 billion investment in OpenAI [2] Business Practices - Concerns have arisen regarding Nvidia's business practices, particularly the circular nature of its deals, which resemble vendor financing where Nvidia lends money to customers to purchase its products [3] - The largest deal involves Nvidia investing $10 billion annually into OpenAI over the next decade, primarily for purchasing Nvidia's chips [4] - Nvidia has strongly denied any reliance on vendor financing to grow revenue, despite comparisons to Lucent Technologies, which faced issues due to similar practices [5] Investor Sentiment - Tech investor James Anderson has expressed concerns about Nvidia's deal with OpenAI, noting that the term "vendor financing" evokes negative connotations [7] - Other significant deals include Oracle's $300 billion investment in datacenters for OpenAI, which OpenAI will repay, and a multibillion-dollar chip deal between OpenAI and AMD [8] Financial Structures - Nvidia has utilized special-purpose vehicles (SPVs) in its financing deals, including a $2 billion investment linked to Elon Musk's xAI, which will be used to buy Nvidia's chips [10] - Comparisons have been made to Enron's use of SPVs to hide debts, but Nvidia asserts its reporting is transparent and does not involve hiding liabilities [11] Market Dynamics - Analysts suggest that while Nvidia is not hiding debt, it is heavily reliant on vendor-financed demand, which poses risks if AI growth slows [13] - Nvidia's future success hinges on the ability of its customers, such as OpenAI and CoreWeave, to generate profits and continue purchasing Nvidia's systems [13] Strategic Partnerships - Nvidia has secured significant deals with governments, including a multi-billion dollar agreement with South Korea for 260,000 Blackwell chips, and a commitment from Saudi Arabia's AI startup Humain for up to 600,000 chips [18][19] - These government partnerships introduce uncertainties due to the opaque terms and large capital commitments involved, concentrating risk among a few major customers [21]