"What happens when Nvidia Corp. ( NASDAQ: NVDA) invests $100 billion in OpenAI, and much of that money comes back to it in the form of chip purchases? This is sometimes called "cash being recycled" or "round-tripping." It raises the question of whether Nvidia would get this revenue without investing. The chipmaker has invested in several other AI companies. Another one that raises the issue of investment in which Nvidia gets chip purchases in Elon Musk's xAI."
"If the Nvidia practice concern becomes widespread, the perceived impact on its revenue could reach billions of dollars. In the most recent quarter, the revenue figure was nearly $47 billion. That was up 56% from the same quarter the year before. The surge in its stock, which has taken its market cap to over $4.5 trillion, would also be at risk."
Nvidia invested $100 billion in OpenAI, with much of that capital potentially returning as purchases of Nvidia chips, a practice described as cash recycling or round-tripping. The company has made similar investments in multiple AI firms, including xAI, where chip purchases by investee companies could be tied to Nvidia's equity stakes. Analysts have compared such arrangements to having a parent co-sign a mortgage, raising scrutiny in financial markets. If widespread, the perception that revenue is self-generated through investments could put billions of perceived revenue and stock-market valuation at risk. Accountants and executives may face pressure to explain and defend these transactions.
Read at 24/7 Wall St.
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