Nvidia Dives After Posting Record Beat the Street Numbers. Why?

The answer is easy, but analysts are perplexed.

“Largest, Cleanest Beat” Ever

Please consider Analysts Perplexed as Nvidia Fails to Rally after “Largest, Cleanest Beat” Ever

The chipmaker reported revenue that came in $3 billion above guidance for the second consecutive quarter and issued outlook that was $5 billion ahead of consensus. Management also guided for growth in every quarter this year, with momentum expected to continue into 2027. Still, shares are down more than 3% in early Thursday trade.

“We aren’t sure what else investors want to hear at this point,” Bernstein analyst Stacy Rasgon siad.

Here’s what Wall Street analysts have to say about Nvidia’s blockbuster earnings report. 

Morgan Stanley analyst Joseph Moore: “Largest, cleanest beat and raise in the history of the semis industry – surpassing the second best, which was NVIDIA 3 months ago. Numbers were at the high end of anyone’s expectations, based on our conversations, yet the stock reaction after hours was muted. We are surprised at that, though we have highlighted that the bigger debates holding the stock back are longer term in nature. We would continue to argue that the long term also looks pretty good, while conceding that the growth next year will still be somewhat capital markets driven.”

Raymond James analyst Simon Leopold: “We are a little perplexed by the muted stock response. Demand remains robust and operational execution is impressive.”

Stifel analyst Ruben Roy: “Our fundamental thesis is reinforced: compute has become the primary revenue-generating “factory” for the global economy, and NVDA’s one-year product cadence (Vera Rubin 2H delivery) provides a multi generational lead. We think GTC in March will offer longer-term outlook, likely more impactful to the stock.” 

BofA analyst Vivek Arya: “The muted stock reaction post-print is likely on continued market concerns around AI disruption (fatigue), greater upside from networking vs. compute in the reported quarter, and no additional update to the $500bn+ in CY25/26 data center sales. However, we view this as short term noise, and trading at just 24x/18x CY26/27E PE (or <0.5x PEG vs Mag-7 peers at 1.5x+), the stock presents a compelling valuation.”

Barclays analyst Tom O’Malley: “More news likely to come from the recent Groq acquisition at GTC, which can potentially help break the stock free from the paralysis… This is the most interesting name in the group.”

Nvidia (NVDA) is down about 5.34 percent as I type.

Q: Why?
A: The stock was priced well beyond perfection.

Had Nvidia missed, it probably would have plunged 20 percent or more.

Look at those analyst comments above. Is there any major mainstream analyst not bullish on the company?

Circular Deals

Nvidia is facing scrutiny over allegations of employing “circular financing” (or “round-tripping”), where the company allegedly invests in or lends money to AI startups and cloud providers (e.g., OpenAI, CoreWeave), which then use those funds to purchase Nvidia’s GPUs. Analysts worry this creates artificial revenue growth and inflates AI demand.

AI Overview of the Controversy

• The Mechanism: Nvidia invests heavily in companies like OpenAI and CoreWeave, which are simultaneously the largest customers for their H100/B200 chips.
• Concerns: Critics argue this, similar to historical telecom bubbles, creates a high-risk ecosystem where the “growth” is just money circulating between firms. If the cash flow stops or AI monetization fails, the entire chain could collapse.
• Nvidia’s Stance: Nvidia has denied these claims, providing a seven-page memo to analysts arguing they do not rely on such arrangements to grow revenue.
• Evidence Cited by Critics: High Days Sales Outstanding (DSO) (a measure of how long it takes to collect payment) suggesting “phantom revenue” and extreme customer concentration, with a massive percentage of revenue coming from a few heavily-invested partners. 

Nvidia Denial

On November 29, 2025. Yahoo!Finance reported Nvidia says it isn’t using ‘circular financing’ schemes. 2 famous short sellers disagree.

Nvidia (NVDA) sent a memo to Wall Street analysts over the weekend arguing that it is not engaged in vendor financing, a controversial practice in which suppliers invest in or extend loans to their own customers.

Famed short sellers Jim Chanos and Michael Burry aren’t so sure.

Nvidia wrote a seven-page document — first reported by Barron’s on Tuesday morning — rebuffing claims that it invests in its own customers to inflate its revenue. The memo was written in response to a newsletter from a little-known Substack author last week claiming that the $5 trillion AI chipmaker is engaged in a “circular financing scheme” — using vendor financing to boost sales — drawing parallels between Nvidia and famous dot-com era accounting frauds committed by Enron and Lucent.

Chanos, who is famous for predicting the fall of Enron, thinks the comparison between Nvidia and Lucent bears weight.

“They’re [Nvidia is] putting money into money-losing companies in order for those companies to order their chips,” Chanos told Yahoo Finance in an interview.

Nvidia has invested heavily in its own customers — from ChatGPT developer OpenAI (OPAI.PVT) to Elon Musk’s xAI (XAAI.PVT) to a slew of AI cloud firms, including CoreWeave (CRWV) and Nebius (NBIS) — and those investments have raised eyebrows on Wall Street.

“NVIDIA does not resemble historical accounting frauds because NVIDIA’s underlying business is economically sound, our reporting is complete and transparent, and we care about our reputation for integrity,” Nvidia wrote in its memo, which was obtained by Yahoo Finance.

“[U]nlike Lucent, NVIDIA does not rely on vendor financing arrangements to grow revenue,” the company continued. Nvidia noted that in typical vendor financing agreements, customers pay back suppliers over years. Meanwhile, the chipmaker said its customers pay the company within 53 days after purchasing its chips.

A Guide to the Circular Deals Underpinning the AI Boom

Bloomberg has a January 22, 2026 article, A Guide to the Circular Deals Underpinning the AI Boom

ChatGPT kicked off the AI boom, but it was a landmark partnership between its developer OpenAI and software giant Microsoft Corp. that laid its financial foundations.

This playbook has been repeated by the AI community ever since. Cloud computing companies and chipmakers — Nvidia Corp. chief among them — have helped to fund leading AI developers, which in turn became some of their largest customers.

The result is an increasingly interconnected web of dependencies between technology manufacturers and AI startups. The risk with these “circular” deals is that they can create skewed incentives that may lead to bad decision making and magnify losses if demand for AI fails to match today’s lofty expectations. The stakes are high as the AI boom has sucked in gargantuan sums of money from debt and equity markets and buoyed multiple industries.

What makes a deal circular?

The term typically refers to an arrangement in which one company invests in another firm that buys its products and services: By doing so, the businesses effectively bind their fortunes more tightly to one another. (A circular deal is different from a fraudulent “round-trip” transaction, a term regulators have used for sham trades with no economic substance that are designed to inflate reported results.)

Circularity can be a winner for all involved if things go well: Company A buys a stake in Company B, giving Company B more money to invest and expand so that, in the end, it needs more of Company A’s products and services. When demand is rising and capital is readily available, the combination of investments and purchase commitments can act like a flywheel.

So what’s the problem?

If revenue from AI products does not grow as much or as fast as expected, company B might find itself staring at untenable bills for data center capacity and hardware. Company A loses twice — company B stops buying its products and its stake in company B tumbles in value.

Circular deals don’t just increase the potential damage to the companies in a market downturn. They can also skew the balance of incentives to encourage bad decision making. A company that has one of its suppliers as a major shareholder may be more likely to keep buying its stuff whether or not it makes commercial sense. That increases the risk of money being spent to secure business that fails to materialize. The circularity can be most risky when a handful of buyers are responsible for a large share of the market — as is the case with AI.

Here we go again?

During the internet boom of the late 1990s, fiber optic networks were built on the promise of relentless growth. Equipment makers helped to fuel the expansion with vendor financing — loans and other support that allowed telecommunication service providers to sustain the heavy investments.

When demand forecasts fell short and prices for transporting internet data sank, the model broke: Heavily leveraged carriers slashed spending and some filed for bankruptcy. Much of the capacity sat underused for years as the industry consolidated.

As the market softened, some carriers also relied on “capacity swaps,” selling one another rights to network capacity and recording the transactions as sales, even when the deals largely washed out because the parties were buying similar capacity from each other. In the early 2000s, US Congressional investigators examined this tactic at carriers including Qwest and Global Crossing. Both companies later moved to restate revenue tied to some swap deals.

Paul Kedrosky, a venture capitalist who covered networking and communications companies as a technology analyst during the telecom boom, said AI capital spending is climbing toward levels last seen at the peak of the late-1990s fiber-optic buildout. In some cases, he said, the risk is that facilities using today’s semiconductor chips will become obsolete before they’ve made a return on investment.

This Isn’t Fraud

Nvidia isn’t Enron, Global Crossing, or WorldCom.

It will remain profitable even if it the some businesses supporting it default on payments.

But how long can this growth go on with AI-Related companies that have zero earnings?

One never knows the answer to questions like the above, until hindsight. But we can say that sell the news to record beat-the-the street, beyond perfection, numbers is seldom any good.