Nvidia rebuts critics — that’s the headline capturing the flurry of activity this week after the AI-chip giant issued a defensive memo aimed at countering serious allegations about its business practices and financial health. The company, once valued near US$5 trillion, now trades at around US$4.5 trillion. Facing mounting skepticism from investors, analysts and short-sellers, Nvidia launched what amounts to an information campaign both on Wall Street and social media — a highly unusual move for a company of its stature.
The memo was circulated privately to sell-side analysts and later published by a research firm, and addresses claims made by prominent critics including Michael Burry (famously known from “The Big Short”) and other voices publishing via Substack. The core of the criticism: that Nvidia may be inflating demand, piling up unsold inventory, relying on questionable financing practices, and even that its financial setup echoes past accounting scandals in big tech (think Enron, WorldCom or Lucent Technologies).
But Nvidia doesn’t accept these claims. In its memo, the company systematically pushes back — defending its accounting, arguing that its business remains economically solid, and acknowledging only one major concession: that its newest chips (the Blackwell GPUs) have lower gross margins and higher warranty costs because of their complexity.
What’s inside the criticisms — and why some investors are worried
To understand why Nvidia felt compelled to respond so publicly, it helps to break down the main arguments leveled against it:
Inventory & Demand Concerns
Critics claim that by analysing Nvidia’s public financial disclosures using AI tools, there is evidence of piling inventory and customers who are not paying — suggesting weak demand.
If true, this would imply that demand for AI infrastructure might not be as robust as headlines suggest — a red flag for a company whose valuation heavily relies on future AI growth.
“Circular Financing” & Accounting Fears
One of the more serious claims is that Nvidia is using “circular financing”: the company allegedly invests in AI-driven startups (or entities) and those same entities then make large orders of Nvidia chips — potentially inflating demand artificially. Some critics compare this to how companies like Enron or Lucent used off-balance-sheet vehicles or vendor-financing to mask poor fundamentals.
This kind of structure, if real, could mislead investors about actual consumption of Nvidia’s hardware, artificially boosting revenue and valuations.
Concerns Over Depreciation, Profitability & Bubble Risk
A deeper line of critique — voiced notably by Michael Burry — is that the rapid AI-infrastructure build-out may be creating a bubble. Part of this argument hinges on how AI firms (and Nvidia’s customers) account for expensive hardware like GPUs, spreading depreciation over many years to show healthier profits and asset values.
In this view, once depreciation catches up — or once demand slows — the value of these assets and the revenue tied to them could collapse. This argument echoes earlier tech bubbles (e.g. dot-com, telecom), where high valuations collapsed when fundamentals failed to meet expectations.
How Nvidia responded — the defenses laid out in the memo
Facing these criticisms, Nvidia took the rare step of directly addressing analysts — and by extension, the broader public. Here’s what it argued:
- No shady accounting schemes: Nvidia said it does not use off-balance-sheet structures or special-purpose entities to hide debt or inflate sales. The company insisted its financial reporting is transparent and its core business is economically healthy.
- Minimal strategic-investment exposure: The memo claims that investments Nvidia has made into other AI companies — sometimes cited as evidence of circular financing — represent a very small fraction of its overall revenue, and even smaller relative to the global private-capital markets.
- Customer-financed revenue model: Most of the companies in Nvidia’s investment portfolio generate revenue from third-party clients — not from Nvidia — undermining the argument that Nvidia is artificially pumping demand.
- Admitting real pressure points: Notably, Nvidia did not deny reduced margins for Blackwell chips — thanks to their complexity and higher warranty costs — acknowledging production and cost pressures.
In short: Nvidia wants investors to treat its critics’ claims as “unfounded” and to trust that its fundamentals remain solid even in the face of a weaker top-line valuation.
Context: Why timing and external pressures amplify the controversy
The rebuttal memo comes at a delicate moment for Nvidia — and for the broader AI-chip ecosystem. Here are some of the external factors exacerbating the situation:
- Competition heating up: A recent report claimed that Meta Platforms is exploring the use of AI chips from Google, potentially reducing its reliance on Nvidia. That triggered a drop in Nvidia’s share price.
- Public defense on social media: Nvidia even responded publicly — via social media — calling Google’s success “delightful” but reaffirming that its chips remain “a generation ahead.” That post itself attracted criticism: some questioned why Nvidia would publicly spar with a major customer.
- Massive market expectations — and fragility: The hype around AI has pushed valuations sky-high, but many analysts worry this rests on fragile assumptions: continued rapid growth, rising demand for GPUs, and sustained profitability even as energy and infrastructure costs mount. That leaves little room for missteps.
In that light, the memo is as much about restoring confidence as it is about refuting specific allegations.
What this means for investors, AI-industry watchers, and the future of AI chips
For Investors: Proceed with Cautious Optimism
If you believe Nvidia’s rebuttal, the company’s fundamentals — strong demand, robust sales of Blackwell, diversified revenue, transparent accounting — remain intact. But the admission of lower margins and higher warranty costs shows the risks are real. The heavy reliance on a few major customers and on ongoing AI-infrastructure spend makes Nvidia vulnerable if demand softens or competition intensifies.
Therefore, investors should weigh: high potential rewards vs high structural risk.
For AI Industry & Infrastructure Landscape
This episode may force greater scrutiny across the industry. The “circular financing” and depreciation-related criticisms suggest that some AI startups — and hardware providers — may have incentives to inflate demand or defer costs. That could accelerate calls for more transparent financial reporting and tighter accounting standards in AI infrastructure.
If future AI investments slow or hardware obsolescence accelerates, many firms could face write-downs or devaluations.
For Nvidia’s Competitive Position
Nvidia’s public defense might help reassure customers and investors. But responding publicly — even on social media — to a major customer potentially buying competitor chips might strain relationships or undermine corporate diplomacy.
Moreover, as competitors such as Google ramp up their own AI-chip offerings, Nvidia will have to prove that its technological edge justifies its premium margins — especially now that the high margins of earlier generations aren’t guaranteed.
Broader Implication: AI Boom vs AI Bubble Debate
At its heart, this controversy speaks to a key question facing the entire tech industry: Is the current rush of investment into AI driven by sustainable demand — or are we witnessing an inflated “AI bubble”?
Nvidia’s rebuttal attempts to push the narrative toward “sustainable growth.” Critics like Michael Burry argue that the risk is real. How this plays out in the next 2–3 years — as more firms deploy AI models, as cloud-computing costs rise, as geopolitical constraints (e.g. export controls) bite — may determine whether the AI hardware boom becomes a long-term infrastructure transformation or a speculative crash.
Final Thoughts: Why the Nvidia rebuts critics memo is a watershed moment
The “Nvidia rebuts critics” memo may go down as one of those rare moments when a dominant tech company stops the normal PR/earnings-call playbook and chooses to address existential doubts head-on. That — in itself — is telling.
For stakeholders (investors, AI builders, competitors), this is a signal that the future of AI infrastructure is entering a more mature, possibly more skeptical phase. The novelty and hype may soon give way to scrutiny, realism, and — perhaps — consolidation.
Whether Nvidia emerges stronger depends on whether demand for AI chips remains robust, whether its newer products outperform expectations, and whether it can maintain trust — not just through marketing, but through consistent performance and transparent reporting.
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