Note: the following commentary is from the latest issue of my Short Seller’s Journal, a weekly newsletter dedicated to dissecting the latest economic reports and looking for ways to express a bearish view of the stock market. It’s notable that Jensen Huang (CEO) unloaded well over $1 billion worth of shares between June 13th and September 13th.
Nvidia update – (NVDA – $132) – Nvidia and Jensen Huang are no strangers to accouting fraud. Huang has settled with SEC by paying big fines multiple times for revenue recognition and disclosure fraud. Currently it is likely that, on top of revenue recognition fraud, Nvidia is invovled in a quasi-revenue generating Ponzi scheme.
NVDA reported its FY 2025 Q3 numbers Wednesday after the close. Of course it beat estimates across the board. However, while guidance of $37.5 billion in revenues for Q4 “beat” the median consensus of $37.1 billion, it was far below the buyside expectations of $38.8 billion and well below Goldman’s expectations of $39 billion. Also, of note, NVDA’s gross margin declined from 75.1% in FY ’25 Q2 to 74.6% in the latest quarter. The stock initially dropped 5.4% in after hours trading but ended up down 2.5% when the after hours trading closed.
The data center unit, which sells the “coveted” AI chips, represents 86% of NVDA’s revenues (gaming/graphics, professional graphics, auto & other is the rest). However, within the data center segment, the networking revenues declined over 14%. Networking revenues are derived from the sale of networking hardware inter-connectivity components that enable data transfer. Although networking revenue is just 10% of the overall data center, it’s interesting that the revenue in that segment declined because, to the extent that there’s growth in the sale of AI chips, I would think that there should commensurate growth the sale of the high-speed hardware components that transmit data processed by NVDA’s chips.
This is a potential red flag because, as detailed in previous issues, it’s suspected by many – including me – that NVDA is using a Ponzi-like scheme to manufacture a material portion of its revenues. It does this by investing in “hyper-scaler” data center start-ups who use the proceeds from NVDA’s investment to buy chips. However, if these start-ups are not ready to open for business, they might not be purchasing the hardware from NVDA that would be used to enable the data centers to operate and sell cloud computing services. This is just speculation on my part but I’m not the only one who noticed this as some financial media reports noted that networking revenues declined.
The other interesting aspect of NVDA’s numbers is the slowdown in the rate of growth in NVDA’s data center segment (sale of AI chips, mostly). Over the last four quarters, the QoQ growth rate in revenues has been, starting from FY Q2 2024 to present: 26.8%, 22.2%, 16.4% and 17.2%. The growth rate from FY 2025 Q2 to Q3 rose, but the decline in the growth rate from FY Q3 2024 to Q3 this year is dramatic. Furthermore, I can almost guarantee that Jensen Huang used NVDA’s funding of start-ups during the quarter in order to guarantee a small bounce in the QoQ revenue growth rate.
Perhaps the most remarkable aspect of NVDA’s financials since the rate of growth in AI chips soared is the fact that NVDA has been reporting $4 billion +/- in revenue growth since The FY 2024 Q2 – five straight quarters of consistent $4B in revenues growth. This consistency is just too “clean” and thus another red flag pointing toward the potential of profound accounting fraud.
Another interesting metric that potentially points to the revenue generation Ponzi-like scheme that many of us suspect is occurring at NVDA is that fact that the percentage growth in accounts receivable is substantially higher than revenue growth. As an example sequentially from the FY Q2 to FY Q3 revenues grew 17.2% but accounts receivable grew 24.8%. My best guess is that either NVDA engaged in channel-stuffing, in which it ships more chips than were ordered, possibly on the assumption that the orders might fill-in during FY Q4 or it sold chips to NVDA-funded start-ups which were not funded int time to pay at quarter-end. There could be some other reason but the large increase in accounts payable relative to revenue growth is a big red flag.
Jensen Huang triggered a rally in NVDA’s stock price starting in September from $102 to as high as $150 when its Q3 numbers were released by claiming that the demand for NVDA’s H100 (the current hot chip) was “insane” at an investment conference. Funny thing about that, several NVDA’s bearish analysts discovered in early November that H100 chips and racks that were built by SMCI to host the GPUs were being offered for sale on EBAY. Now why would this be this case if demand for the chip was insane? I checked for myself and sure enough NVDA chips and SMCI hardware are freely for sale on EBAY. There’s also this: @DarioCpx
Regardless of whether or not NVDA’s financials are infested with accounting fraud – and I believe it’s a certainty, not a possibility – the slowdown in the rate of growth in revenues at some point will cause a contraction in the stock’s Price/sales and price/earnings ratios. Currently the P/S is an eye-watering 28.7 and the P/E is 52.1. Furthermore, META, GOOG and AMZN are developing their own AI chips in order to wean themselves off of overpaying for NVDA’s GPUs. The contractions in the valuation multiples may have begun after it closed at an all-time high on November 7th ($148.88), backed off for two days and then failed a retest on Novmeber 12th):
When I published the last issue of my Short Seller’s Journal on Sunday, I commented that I wanted to see the stock drop below the 21 dma (light blue ma line), and hold below. It did that Monday and Tuesday and is currently below the 50 dma (yellow ma line). If it holds below the 50 dma, it will seek out the 100 dma (dark blue ma line, $125.98 today). I think, barring a continued slow-motion melt-up in the stock market, that NVDA will fall to the 200 dma (red dma, $111.73 today) by Christmas Eve.