Nvidia’s $100B OpenAI Deal Sparks Round-Tripping Concerns

The core concern surrounding Nvidia’s $100 billion investment in OpenAI centers on what financial analysts call ’round-tripping’ or ‘cash recycling.’ The fundamental question being raised is whether Nvidia would receive this level of chip purchase revenue from OpenAI without making the substantial investment first. As described by 24/7 Wall St., this creates a scenario where money essentially flows out of Nvidia as investment capital and returns as chip sales revenue, potentially creating artificial revenue streams that might not exist in a purely arms-length transaction.

This concern isn’t isolated to the OpenAI deal alone. The chipmaker has made similar strategic investments in other artificial intelligence companies, including Elon Musk’s xAI, creating parallel patterns that amplify the broader industry implications. The emergence of this practice across multiple investments suggests a strategic approach that could systematically impact how Nvidia’s revenue is perceived and valued by the market.

The timing of these concerns is particularly significant given Nvidia’s recent financial performance. In the most recent quarter, the company reported staggering revenue of nearly $47 billion, representing a 56% increase from the same quarter the previous year. This explosive growth has propelled Nvidia’s market capitalization to over $4.5 trillion, making the sustainability of these revenue streams a critical question for investors and analysts alike.

Financial analysts are beginning to voice concerns about the potential implications of these investment patterns. Jay Goldberg, an analyst with Seaport Global Securities, offered a telling comparison, describing such deals as ‘someone asking their parents to be a co-signer on their mortgage.’ This analogy highlights the dependency relationship that could develop between Nvidia and the AI companies it invests in, potentially compromising the arms-length nature of their commercial transactions.

The seriousness of these concerns is underscored by their appearance in major business publications. Fortune recently published an article titled ‘Nvidia’s $100 billion OpenAI investment raises eyebrows and a key question: How much of the AI boom is just Nvidia’s cash being recycled?’ The fact that such a prominent publication is highlighting this issue suggests that sophisticated market participants have already begun serious conversations about the potential accounting and ethical implications.

If the practice of round-tripping becomes widespread across Nvidia’s investment portfolio, the perceived impact on its revenue could reach billions of dollars. Given the company’s current revenue trajectory and market valuation, even small adjustments to revenue recognition could have outsized effects on investor confidence and stock performance. The concern is that what appears to be organic growth might instead be artificially supported by circular financial arrangements.

Eventually, Nvidia’s accounting team will need to address the technical questions surrounding round-tripping practices. The fundamental accounting issue revolves around whether revenue generated from companies that Nvidia has substantially invested in should be treated differently for financial reporting purposes. Current accounting standards may not adequately address these complex, interconnected transactions, potentially requiring new interpretations or regulatory guidance.

In the interim period before formal accounting clarification, Nvidia may find itself needing to defend against accusations of artificial revenue inflation. The company’s leadership will likely need to provide transparent explanations about the commercial rationale behind these investments and demonstrate that chip purchases would occur regardless of the investment relationships. This defense becomes increasingly important as the company’s market capitalization and influence continue to grow.

The stakes for Nvidia are exceptionally high. The company’s stock surge and $4.5 trillion market capitalization are predicated on sustained, organic growth in the artificial intelligence sector. If investors begin to question whether a significant portion of this growth is being driven by circular financial arrangements rather than genuine market demand, the foundation of Nvidia’s valuation could be at risk. The coming quarters will be critical for the company to either substantiate the organic nature of its growth or face increasing market skepticism about its financial reporting practices.