‘We are not Enron’: Nvidia rejects AI bubble fears

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Nvidia has insisted it is not facing an Enron-style financial scandal, as the chipmaker hit back at short-sellers betting against an AI bubble.

The world’s most valuable company has sought to ease market concerns by writing to analysts to contest claims by Michael Burry, the trader who predicted the 2008 housing crisis.

In particular, Nvidia said it is not artificially inflating revenues, rejecting claims by Mr Burry that the AI sector is being propped up by a string of circular deals, rather than genuine demand from businesses using the technology.

The note to analysts emerged as Nvidia’s shares suffered a fresh sell-off on Tuesday, plunging 6pc after it emerged rival Google was in talks to offer its own chips to Facebook owner Meta.

This also led to shares in Alphabet, Google’s parent company, climbing by 4pc as investors anticipate the business gaining ground on Nvidia in the race to dominate AI.

Nvidia became the first company to be valued at $5tn in October, although its share price has fallen in recent weeks owing to concerns that AI stocks have become overvalued. It was worth around $4.2tn on Tuesday.

In its note to analysts, first reported by Barron’s, Nvidia pushed back on claims it has been fuelling an AI bubble and insisted its business “does not resemble historical accounting frauds”.

Nvidia said that “unlike Enron” – the US energy giant which collapsed into bankruptcy in 2001 – it has not been attempting to conceal any debt and is not distorting its sales.

It also rejected comparisons to WorldCom and Lucent, one-time US telecoms giants that were both accused of fraud at the height of the dotcom bubble.

Nvidia’s rebuttal comes after Mr Burry, who inspired the book and Hollywood film The Big Short, has raised concerns over the tech giant’s accounting techniques, including its reporting of share compensation schemes.

He has claimed that a web of circular deals among the world’s biggest AI companies, led by Nvidia, amounts to “suspicious revenue recognition” and that true demand for a wave of AI tools is “ridiculously small”.

“Almost all customers are funded by their dealers,” he said in a post on social media last week.

The investor has also claimed the way Nvidia’s graphics chips are accounted for is incorrect, claiming they have a much shorter use life than has been suggested.

Last month, he revealed bets against Nvidia and Palantir of more than $1bn (£760m), allowing him to make a significant profit if the stock fell.

However, in its note to analysts, Nvidia said: “Nvidia’s underlying business model is economically sound, our reporting is complete and transparent, and we care about our reputation for integrity.”

In a call after its results last week, when Nvidia reported revenues of $57bn, Jensen Huang, the Nvidia chief executive, dismissed fears of a stock market bubble.

Mr Huang said: “There’s been a lot of talk about an AI bubble. From our vantage point, we see something very different.”

After details of Nvidia’s note to analysts were released, Mr Burry said: “Nvidia emailed a memo to Wall Street sell-side analysts to push back on my arguments. I stand by my analysis.”

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