The AI Sector's Achilles Heel: Why Industry Giants Are Abandoning Nvidia

Nvidia’s latest earnings announcement painted a picture of unstoppable growth—$57 billion in quarterly revenue and $31.9 billion in profit sent shockwaves through Wall Street. Yet within 18 hours of its 5% post-earnings surge, the stock reversed course. This whiplash reveals a deeper anxiety: the numbers that look stellar on paper may not tell the full story.

The Cash Conversion Problem Nobody’s Talking About

Here’s where the math gets uncomfortable. Nvidia generated $19.3 billion in reported profit last quarter, but only $14.5 billion actually hit the bank account. That $4.8 billion gap—roughly 25% of profits—isn’t converting to real cash. Compare this to semiconductor peers: TSMC and AMD convert over 95% of their earnings into cash. Nvidia’s 75% rate has raised eyebrows among financial analysts who view it as a warning signal.

The payment situation tells an even more troubling tale. Customers owe Nvidia $33.4 billion—nearly double the amount from 12 months prior. Average payment cycles have stretched from 46 days to 53 days. Simultaneously, the company holds $19.8 billion in unsold inventory while publicly claiming demand remains insatiable.

Industry observers have pointed out the logical inconsistency: “Either customers aren’t actually buying, or they’re buying on credit. The cash situation reveals what the marketing doesn’t,” according to financial analysts monitoring the situation.

The Revenue Recognition Question: Same Money, Counted Twice?

Nvidia sells chips to AI powerhouses like xAI, Microsoft, OpenAI, and Oracle. But here’s the catch—many of these transactions involve circular financing. The buying companies often fund their purchases through capital or loans provided by the same investors or entities backing Nvidia. The result is revenue that gets counted multiple ways as money cycles through the ecosystem.

This practice has attracted scrutiny. When the same dollars flow from investor → AI company → Nvidia and back again, it creates the illusion of demand while masking where genuine end-user purchasing actually occurs.

High-Profile Investors Place Their Bets Against Nvidia

Michael Burry, the legendary investor whose 2008 financial crisis predictions gained widespread recognition, has sounded an alarm. He’s flagged what he calls “suspicious revenue recognition” across the AI sector, arguing that true organic demand from actual end-users is minuscule compared to reported figures.

Burry’s analysis extends beyond revenue concerns. He’s highlighted Nvidia’s $112.5 billion stock buyback program since 2018—spending that continues even as the company issues new shares, effectively diluting existing investors. He’s also questioned whether older GPU models, which consume significantly more electricity than current-generation chips, hold the value Nvidia claims. “Something being in use doesn’t automatically mean it generates profit,” he emphasized.

Burry isn’t alone in his skepticism. Peter Thiel completely exited his 537,742-share position in Nvidia. SoftBank dumped $5.8 billion worth of shares in November. Most dramatically, Burry purchased put options betting Nvidia would collapse to $140 by March 2026—a significant decline from current levels.

Market Contagion: The Crypto Connection

Nvidia’s stability carries unexpected consequences for cryptocurrency markets. Bitcoin has shed nearly 30% since October, partially because AI startups hold $26.8 billion in Bitcoin as collateral. If Nvidia’s stock performs poorly, forced liquidations of this collateral could trigger cascading sell-offs across crypto markets.

The stakes are also psychological. CEO Jensen Huang reportedly told staff that if Nvidia had reported disappointing quarterly results, “the whole world would’ve fallen apart”—a statement that reveals how central the company has become to investor confidence in AI as an investment thesis.

The Counterargument: Believers Still See Upside

Nvidia supporters emphasize the company’s $23.8 billion in operating cash flow and locked-in mega-orders from companies like Microsoft and Meta. They argue that inter-company transactions, while worth examining, aren’t unusual in the tech sector during periods of rapid scaling.

Yet broader market sentiment suggests caution prevails. A Bank of America survey found that 45% of fund managers now classify AI as a major bubble risk. This concern isn’t isolated to Wall Street—the IMF and Bank of England have also flagged AI-sector valuation risks in recent statements.

The Timeline Matters: What Comes Next

The next 120 days will prove critical. Nvidia’s fourth-quarter earnings in February 2026 will receive intense scrutiny. March brings potential credit rating reassessments. April could bring accounting restatements if financial irregularities emerge.

Whether Nvidia sustains its dominance or becomes a cautionary tale about valuation excess will likely define not just the company’s future, but the credibility of the entire AI investment cycle. The Nvidia story has become the centerpiece of a much larger debate: Is AI’s current valuation justified, or are we witnessing the inflation of a historically significant bubble?