Nvidia’s ‘I’m Not Enron’ Memo Sparks Questions It Already Answered
▼ Summary
– Neoclouds are essentially extensions of Nvidia and depend on its technology, according to Saari.
– These neocloud companies do not generate profits and must take on debt to fund their expansion.
– Their primary function is to boost Nvidia’s sales, regardless of their own long-term viability.
– The situation is compared to Enron’s use of special purpose vehicles, but Nvidia’s actions are legal and transparent.
– This behavior is described as unhealthy and not good, but investors can see it and are choosing to ignore it.
The structure of Nvidia’s business relationships with so-called “neocloud” companies is drawing scrutiny for its resemblance to certain historical financial arrangements. According to industry analyst Saari, these neocloud operations function almost as extensions of Nvidia itself, given their deep reliance on CEO Jensen Huang’s ecosystem. A critical point of concern is that none of these entities are currently profitable, forcing them to accumulate debt in order to fund their expansion efforts.
When viewed through a particular lens, these neoclouds could be seen as metaphorical special purpose vehicles for Nvidia. Their primary role appears to be driving sales volume for Nvidia’s hardware, regardless of their individual long-term viability. This dynamic even extends to high-profile partners like OpenAI, another Nvidia-backed venture. The enormous data center infrastructure that OpenAI is proposing, potentially with government support, would inevitably require massive quantities of Nvidia’s advanced processing chips.
For those familiar with corporate history, this scenario might trigger memories of the Enron scandal. The comparison isn’t entirely baseless. Enron famously utilized special purpose vehicles to house speculative assets and take on substantial debt. However, a crucial distinction lies in the legality of the actions. Enron engaged in deliberate deception and fraudulent accounting, which constituted illegal activity. In contrast, Nvidia’s dealings with companies like CoreWeave and other neocloud providers are conducted transparently and are fully visible to investors and regulators.
This situation has been characterized by some observers as resembling a tech industry version of an open pump-and-dump scheme, though without the secrecy that typically defines such operations. As analyst Luria notes, while this behavior may not be considered good or healthy for the market, it operates within legal boundaries. The information is publicly available for any investor to examine, though many appear to be overlooking the potential risks in favor of the growth narrative.
(Source: The Verge)
