NVIDIA (NVDA) sent a memo to Wall Street analysts over the weekend, firmly denying its involvement in "vendor financing"—a controversial practice where suppliers invest in or lend money to their own customers. However, prominent short sellers Jim Chanos and Michael Burry remain unconvinced.

The 7-page document, first reported by Barron's on Tuesday morning, refutes allegations that NVIDIA artificially inflated revenue by investing in customers. The memo was issued in response to claims made last week by an anonymous Substack blogger, who accused the $5 trillion AI chip giant of running a "circular financing scheme" to boost sales. The blogger drew parallels between NVIDIA and infamous financial fraud cases during the dot-com bubble, such as Enron and Lucent.

Enron became notorious during the internet boom for manipulating financial data and using off-balance-sheet debt to hide losses in its broadband business. Meanwhile, Lucent, an internet infrastructure provider, was known for aggressively investing in and lending to struggling telecom clients, who then used the funds to purchase Lucent equipment they couldn’t otherwise afford. When the dot-com bubble burst, Lucent had to write off billions in revenue as these telecom startups defaulted on their loans.

Chanos, famous for accurately predicting Enron's collapse, believes the comparison between NVIDIA and Lucent "holds some merit." In an interview, he stated, "NVIDIA is funding money-losing companies so they can order its chips." NVIDIA has made significant investments in several of its customers, including ChatGPT developer OpenAI (OPAI.PVT, private), Elon Musk’s xAI (XAAI.PVT, private), and AI cloud service providers like CoreWeave (CRWV) and Nebius (NBIS)—raising eyebrows on Wall Street.

The memo obtained by Yahoo Finance states: "NVIDIA bears no resemblance to historical fraud cases because our core business has solid economic fundamentals, our financial reporting is complete and transparent, and we value our reputation for integrity." The company further clarified, "Unlike Lucent, NVIDIA does not rely on vendor financing agreements for revenue growth," emphasizing that its customers typically pay within 53 days of purchasing chips, unlike traditional vendor financing where repayment can take years.

Michael Burry, known as "The Big Short" for predicting the 2008 housing crash, expressed even sharper criticism in a recent post on X (formerly Twitter). He labeled NVIDIA as one of several AI market players with "questionable revenue recognition due to customer investments."

Beyond vendor financing, Chanos highlighted another concern for investors: mounting debt in the AI sector. He noted that, similar to Enron, some of NVIDIA’s clients—like Meta (META) and xAI—are using off-balance-sheet debt to finance chip purchases, while others (e.g., Anthropic, ANTH.PVT, private) rely on traditional debt financing. "Piling massive credit and highly complex financial structures onto these loss-making entities is, in my view, the real Achilles' heel of the AI tech market," Chanos told Yahoo Finance on Tuesday.

Despite their warnings about financial engineering artificially inflating AI demand, both short sellers pointed to a simpler core issue: tech giants are racing to spend billions on AI data centers before demand materializes, risking overcapacity. Burry, in his new Substack newsletter "Cassandra Unchained," likened the current AI market to the dot-com era, warning of "catastrophic oversupply and severe under-demand"—too many chips, servers, and data centers chasing insufficient real-world AI adoption.

NVIDIA, however, maintains that the market is accelerating. Its latest earnings report highlighted "record-breaking" AI chip demand and dismissed bubble concerns. Even as rivals like Google challenge its dominance in AI chips, NVIDIA insists its technology remains "a generation ahead."

Chanos remains wary of the risks posed by rapid overbuilding: "If by 2027 or 2028 we realize we’ve built far more data centers or chip capacity than needed, cancellations could follow—a major risk hardly anyone is discussing today."