The #Nvidia 10-Q for the latest quarter is now out, and I have to admit the company is doing an incredibly good job in covering its back from any potential legal consequences of its actions once the incredible Ponzi scheme they are part of will inevitably collapse under its own weight (NO, NVIDIA IS ONLY ONE PIECE OF A BIGGER (FRAUDULENT) PUZZLE).
Please have a look at these two sentences below, of course, placed far away from each other in the Nvidia 10-Q:
“Two indirect customers each represented 10% or more of total revenue for the first quarter of the fiscal year 2025; one of these indirect customers purchased our products primarily through direct Customer B. Both were attributable to the Compute & Networking segment.”
“Sales to one direct customer, Customer A, represented 13% of total revenue and sales to a second direct customer, Customer B, represented 11% of total revenue for the first quarter of the fiscal year 2025, both of which were attributable to the Compute & Networking segment. No customer represented 10% or more of total revenue for the first quarter of fiscal year 2024.”
Do you notice anything strange? Let me help you.
- “Customer B, represented 11% of total revenue for the first quarter of fiscal year 2025.”
- “One of these indirect customers purchased our products primarily through direct Customer B.”
- “Two indirect customers each represented 10% or more of total revenue for the first quarter of fiscal year 2025.”
Yes… All the stock from Customer B is then totally sold to an anonymous “indirect” Customer C.
Wait a minute, why the need for such an arrangement? What’s wrong with Nvidia selling directly to customer C? Here we have two options:
- Nvidia needs to circumvent US Government sanctions and/or;
- Customer C is borrowing (likely from Customer B) to purchase Nvidia GPUs.
Why does Nvidia need a scheme to circumvent US sanctions? According to them: “our inability to sell to a customer due to U.S. or other countries’ trade restrictions or any difficulties in collecting accounts receivable would likely harm our financial condition and results of operations.” Is that also the reason why such a big company (on paper) is so reliant on “channel partners” to the point this deserves mention in their risk disclosures? “With several of these channel partners, we are selling multiple products and systems in our portfolio through their channels.”
Option 2 does not come out of my fantasy either, but directly from Nvidia’s disclosures: “If end demand increases or our finished goods supply availability is concentrated near a quarter end, the system integrators, distributors, and channel partners may have limited ability to increase their credit, which could impact the timing and amount of our revenue.”
Let’s move to another dark side of Nvidia 10-Q now, but before doing so let’s ask ourselves a question: If Nvidia claims such strong commercial bargaining power along with strong demand to the point they can capture a 75%+ profit margin on their sales, why do they accommodate very loose sales terms for their customers? “Most of our sales are made on a purchase order basis, our customers can generally cancel, change, or delay product purchase commitments with little notice to us and without penalty.”
Hold on a second here, is Nvidia telling us most of their sales are “purchase orders” that can be canceled anytime without penalty? That’s what it sounds like, doesn’t it?
Let’s move forward because things are getting even juicier.
“In addition, geopolitical tensions, such as those involving Taiwan and China, which comprise a significant portion of our revenue and where we have suppliers, contract manufacturers, and assembly partners who are critical to our supply continuity, could have a material adverse impact on us.”
and
“Our Data Center revenue in China is down significantly from the level prior to the imposition of new export control restrictions in October 2023. We expect the market in China to remain very competitive going forward.”
After I did it for the first time 6 months ago, let me ask this question again, how is it possible for Nvidia to sell billions of GPUs to Taiwan every quarter when the total data center revenues in the country are estimated to be ~220m$ a year by 2028 for an expected total capital investment in the country of 3.2bn$ by 2028? November X post
According to my Algebra skills, the math does not add up here. Things become even murkier.
“For example, most of the shipments associated with Singapore revenue went to either the United States or Taiwan in the first quarter of fiscal year 2025.”
Wait, what?! Most of the GPUs that are “sold” to Singapore are then shipped out back to Taiwan and the US?
Well, the company itself acknowledges the existence of an “unauthorized gray market,” because, of course, calling it a “black market” would have made it sound too obvious, I guess.
“In general, our new products or previously sold products may be resold online or on the unauthorized “gray market,” which also makes demand forecasting difficult. Gray market products and reseller marketplaces compete with our new products and distribution channels.”
At this point it is fair to ask, is Taiwan the center of a big “unauthorized gray market” for Nvidia products (and, clearly, the company knows about it)? If the answer is “Yes,” the numbers start to make sense.
Personally speaking, I have never encountered these sorts of things in any financial statements before, but what shocks me the most is that nobody, in particular the regulators, is spending time to understand what’s going on with a company that is now worth almost ~3 Trillion dollars and clearly represents a systemic risk for the global financial system.