Defying Short Sellers or Digging a Deeper Hole?

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Nvidia (NVDA) invested $2B in Synopsys (SNPS) to strengthen its chip development supply chain despite growing scrutiny over circular financing allegations.
Michael Burry argues Nvidia mirrors Cisco during the dot-com bubble rather than Enron, and warns of a looming capex apocalypse.
Hyperscalers extended GPU depreciation to four to six years despite Nvidia’s 12 to 18 month refresh cycles and this understates sector depreciation by $176B from 2026 to 2028.
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Nvidia (NASDAQ:NVDA) is facing intensifying scrutiny over allegations of circular financing in its AI chip ecosystem. Critics claim the company engages in a self-reinforcing loop: Nvidia invests in customers like CoreWeave (NASDAQ:CRWV) and privately-held Lambda, which then buy more Nvidia GPUs using that capital, artificially inflating sales. This echoes past concerns with stock-based compensation and chip depreciation practices that boost short-term revenues.

Nvidia has rebutted these claims as misrepresentations, emphasizing there is genuine demand from hyperscalers. Yet critical voices are growing louder, with short sellers warning of hidden risks spreading a contagion.

Undeterred, Nvidia is apparently thumbing its nose at critics, announcing this morning a new $2 billion investment in chip designer Synopsys (NASDAQ:SNPS), signaling confidence — or perhaps defiance — in deepening ties with its key partners.

Michael Burry, famed for correctly calling the 2008 housing crash, has also pushed back on fraud labels. He insists Nvidia isn’t an Enron-style deception, but rather more closely mirrors Cisco Systems (NASDAQ:CSCO) during the dot-com bubble days.

“I am not claiming Nvidia is Enron,” Burry recently wrote on his Cassandra Unchained Substack. It is clearly Cisco.” He points to Nvidia’s role as AI’s “picks and shovels” provider. Like Cisco’s 3,800% surge between 1995 and 2000 — which was followed by a 78% loss of value — Nvidia’s hype-driven growth risks overcapacity if AI demand falters. Hyperscaler commitments for $3 trillion in data center buildouts create “circular loops.” Yet without much end-user traction, a “capex apocalypse” looms.

Burry further exposes how Big Tech is artificially inflating profits by stretching the useful lives of the GPUs it buys from Nvidia. Hyperscalers like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) have quietly extended the depreciation of the GPUs to four to six years, despite Nvidia’s “insane” 12- to 18-month refresh cycles — such as Grace Blackwell in 2024 and Rubin in 2026. Instead of expanding lifespans, a more realistic estimate would be a shortened two to three years.

Burry contends this accounting maneuver understates sector depreciation by an estimated $176 billion from 2026 to 2028, padding earnings 20% today but risking 15% to 25% earnings hits later through impairment charges.

Short seller Jim Chanos — who correctly identified Enron as a fraud — recently amplified the peril the market faces, targeting “neoclouds” like CoreWeave. These startups, often backed by Nvidia, collateralize GPUs for massive debt — over $20 billion across CoreWeave ($10 billion), Fluidstack ($10 billion), Lambda ($500 million), and Crusoe ($425 million) — despite generating zero profits.

It’s one thing for hyperscalers with tens of billions of dollars in profits to engage in iffy accounting practices, it’s quite another for smaller outfits without sufficient financial backing to do it. By assuming long lifespans and ignoring rapid obsolescence, Chanos says, “There’s going to be debt defaults” as losses mount and values plummet.

Ignoring the growing chorus of doubts, Nvidia is plowing ahead. The $2 billion Synopsys stake buys shares — structured as a direct equity investment — to fortify its supply chain resilience.

Synopsys designs electronic systems used in Nvidia’s chip development, so the move accelerates AI innovation while securing a vital partner. It’s Nvidia’s latest customer play, following investments in AI infrastructure firms, betting on an ecosystem lock-in despite critic concerns.

Synopsys shares are jumping 5% at the market open on the news, but Nvidia are falling around 2%, underscoring growing market jitters. Investors appear to be weighing allegations of circular financing more heavily, viewing the latest deal as just throwing more gasoline on the fire.

With AI hype stretched thin and valuations lofty, Nvidia’s 18% slide from its late-October peak could accelerate further, testing the chip giant’s Teflon coating.

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