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Ed, reading thru seems to imply that Nvidia is simultaneously selling chips before they're made and also "warehousing" (by whom?) brand new, unopened GPUs. Aside from the fact that these two narratives directly contradict each other, wouldn't those have to show up somewhere on the balance sheet?

I'm able to track the warehousing claim but don't quite see the selling unmade chips, besides the preorder campaign statement. I can't speak to what Ed thought, but the implication is that (if Nvidia sold them but that they couldn't be installed they'd be capital assets on the purchasers' books?

King V

@mrsaver.bsky.social

I am able to imagine a scenario where both the buyer and seller want to make it appear like the sale was completely finalized so that Nvidia can recognize the revenue, and the purchaser can look like they are “hyperscaling” even though they don’t necessarily have a place to install them at present

I mean if it's happening on both ends at scale that's (1) almost entirely unprecedented and (2) sure to blow up very very quickly

the cash flows would rapidly diverge from the income statement if there wasn't a bunch of outside money flowing in and we simply don't see that happening yet

Can you expound on that a bit? It seems like if you have either a lot of investor money, money from other business units, or money/offsets from the vendor you could keep the channel stuffing operation alive on that?

No because the cash flows reconcile with gaap accounting. You would see a cash falloff if it's all circular bc they have such massive margins

12/5/26, 10:53 pm0 reposts0 likes

Ah, I see - so each time around the circle the margin gets sucked off the top, and thus the cash exponentially dwindles? So you need to have noncircular external funds (be it from investments, customers, or [other]) coming in to keep it running?

Basically yeah, they also have a very small PP&E base as a percentage of revs so they're unable to launder this through capex. Like, to be clear, they are def juicing the sector but there is a ton of real money external to the Nvidia circular deal loop coming in the door for now

Actually, sorry, I don't understand GAAP so I'm probably going to ask dumb questions here; if NVDA sells a GPU to company A (henceforth cA) for $X w/ margin p, then they take X*p profit and spend X*(1-p). If they reinvest X*p in cA isn't the circular loss rate 1-p?

You're overthinking it. You reconcile the difference between changes in cash and net income. For very profitable companies the difference between the two is smaller. If the ratio of these (or related) metrics diverges it's a big deal. A 1% delta YoY is magnifier if the initial spread is small

*magnified

I see, so the issue in what I describe is that the net income X*p would normally be realized as cash at some ratio and by investing that into cA that's not happening anymore and the cash-to-assets ratio then gets messed up?