Nvidia’s AI deals don’t add up on deeper review

Nvidia is investing in a way that even seasoned investors are struggling to process, as the whole layout looks like a giant web where Nvidia sits at every point. Like, it’s the client and it’s the investor too. If we didn’t know any better, we’d say that perhaps the company is funding its own rally.

Just 2 days ago, Nvidia announced partnership with Microsoft and Anthropic, where the AI chipmaker plans to put up to $10 billion into Anthropic while Microsoft adds $5 billion. Then Anthropic turns around and signs up to buy $30 billion worth of compute from Microsoft’s Azure, which runs mostly on Nvidia hardware.

Nvidia has already pushed $23.7 billion into 59 deals this year alone, from January to literally this Monday.

Nvidia in October said that it has $500 billion in orders, for 2025 and 2026 combined, for its AI chips.

Before the AI boom, Nvidia was best-known for making chips for playing 3D video games. Nvidia said it had $4.3 billion in gaming revenue, up 30% from the year-ago period.

Nvidia invests in companies that end up buying its chips with the money

During all of 2024, Nvidia did 54 deals worth $22.8 billion. Nvidia also recently spent $6.6 billion on OpenAI back in October. A month later, it put $6 billion into xAI, the AI company launched by Elon Musk. Then there was the massive commitment in September, where Nvidia agreed to invest up to $100 billion in OpenAI in a deal that sent Nvidia’s stock even higher.

These companies then return as Nvidia customers. OpenAI agreed to deploy “at least 10 gigawatts” of Nvidia systems for its next generation of models. That’s not subtle. It’s money out, then money back in through hardware purchases.

Jay Goldberg, a Seaport analyst with a rare Sell rating on Nvidia, said the setup around the OpenAI deal is “very murky,” adding that it’s “very unclear what the motivation here is… To what degree is Nvidia investing versus buying demand or subsidizing demand [for its chips]?”

Nvidia doesn’t want to explain how these deals work behind the scenes. On our earnings call last night, all CEO Jensen Huang could say was “No, we are not in an AI bubble. Not from where I’m standing.”

Earlier this week, he had been asked on the Bg2 podcast about concerns that Nvidia may be pumping up demand by investing in its own customers, he said the investment in OpenAI was separate from any benefit the company might get.

Jensen said, “[OpenAI] is likely going to be the next multitrillion-dollar hyperscale company, and who doesn’t want to be an investor in that?”

He also said, “My only regret is that they invited us to invest early on, and we were so poor that we didn’t invest when I should have given them all my money.” Jensen pointed to Nvidia’s moves in xAI and CoreWeave as “great investments.”

Stacy Rasgon, a Bernstein analyst, said in October, “I could argue that there’s no better use of Nvidia’s cash right now,” when talking about these customer investments. But not every investor feels calm about it.

Even with those worries rising, Nvidia reported outstanding earnings after the bell on Wednesday and posted $57 billion in quarterly revenue, beating Wall Street expectations again and sending its stock up by more than 8% after hours. Cryptopolitan reported that Nvidia expects about $65 billion in sales in the current quarter, versus $61.66 billion expected by analysts.