Nvidia has denied claims that it uses circular financing to boost sales, pushing back against criticism from famed short sellers Jim Chanos and Michael Burry. The AI chipmaker sent a seven-page memo to Wall Street analysts over the weekend, insisting that it does not engage in vendor financing, a practice where suppliers lend to or invest in their own customers. The memo responds to a recent Substack newsletter suggesting Nvidia uses such arrangements to inflate revenue, drawing comparisons to accounting scandals at Enron and Lucent during the dot-com era. Enron notoriously hid losses using off-balance-sheet debt, while Lucent extended loans to loss-making telecom clients who then bought its equipment, ultimately forcing Lucent to write down billions in revenue. Chanos, who predicted Enron’s collapse, said the parallels with Lucent are noteworthy. He argued that Nvidia is putting money into companies that are losing money so they can buy its chips. The company has invested in several AI firms, including OpenAI, Elon Musk’s xAI, CoreWeave, and Nebius, which has raised concerns on Wall Street. Nvidia, however, emphasized that its business is sound and transparent. In its memo, the company stated that unlike Lucent, it does not rely on vendor financing to grow revenue. Nvidia noted that its customers pay for chips within an average of 53 days, contrasting with long-term repayment structures common in vendor financing deals. Burry, famous for predicting the 2008 housing crash, added that Nvidia is one of multiple AI companies with “suspicious revenue recognition” due to investments in customers. He warned that such financial practices, combined with high debt levels in the AI sector, could pose risks. Chanos highlighted that some of Nvidia’s customers, such as Meta and xAI, use off-balance-sheet debt to purchase chips, while others like Anthropic rely on traditional debt. He described the layering of credit and complex financial structures on top of money-losing companies as a potential vulnerability in the AI market. Both Chanos and Burry believe the bigger concern is the rush to build AI infrastructure. Companies are spending billions to construct data centers ahead of demand, risking oversupply. Burry compared the situation to the dot-com bubble, noting that there is “catastrophically overbuilt supply and nowhere near enough demand” for AI applications. Nvidia maintains that demand for its AI chips is extremely high, citing strong growth in its latest earnings report. The company also claims to be ahead of competitors, despite recent stock fluctuations caused by rising AI chip competition from companies like Google. Chanos warned that if the market overestimates AI demand, companies may begin canceling orders for chips and data centers, creating a risk not widely discussed. Both short sellers agree that while accounting practices may inflate demand figures, the real threat is the rapid, potentially excessive expansion of AI infrastructure. Investors are closely monitoring Nvidia’s moves and the broader AI market, weighing strong current demand against the risks of overinvestment and financial engineering. The debate over circular financing and AI market risks continues to shape perceptions of the tech giant’s long-term stability.