In July 1920, a Boston newspaper worked out that Charles Ponzi would need 160 million international postal coupons to pay back everyone he owed. There were only 27,000 in circulation.
So when the crowd showed up outside Ponzi’s office wanting their money… they realized it was gone and later that year Ponzi was in a federal prison.
Fast forward to the present day… on Wednesday Nvidia reports earnings.
And underneath every preview article this week, the same word keeps appearing.
Ponzi.
Because if you want to sound edgy or get views now you just call Nvidia a Ponzi scheme
Now remember, a Ponzi scheme has no product.
Money comes in from new investors and goes out to old ones, and nothing gets built or delivered along the way.
That's why a newspaper could kill Ponzi with third grade math, because there was nothing to count.
The criticism people are reaching for is that Nvidia has committed enormous sums to the companies that buy its chips.
They’ve given $100 billion into OpenAI, gained a stake in CoreWeave… plus backstopped on an Ohio data centre capped at 105 billion.
Jim Chanos, who called Enron, says Nvidia is "putting money into money-losing companies in order for those companies to order their chips."
But most of the eye-watering figures being passed around are compute agreements.
Legitimate long-term contracts to rent computing power, years at a time, where the buyer commits to pay whether or not it uses every hour. Like a fifteen-year lease on an office you might half fill.
So these are spending obligations, rather than sales. But Nvidia isn’t booking them as revenue, so there’s a very clear distinction.
And the different between Nvidia and companies like Lucent (a famous dotcom bust company that used vendor financing) is that while Lucent leant to loss-making startup… Nvidia’s biggest customers are Microsoft, Amazon, Alphabet and Meta. Who are funding capex from cash flow.
None of this tells me what the shares will do Thursday morning, but as far as Nvidia being a Ponzi scheme goes… this ain’t it.
Oliver