Yesterday, Nvidia dropped 5% – down 17% from its peak. This happened following reports of a new $500B deal with SK Hynix and talks of a $250B investment in OpenAI.
How it works:
🔵 Nvidia produces and sells chips
🔵 Nvidia invests money into chip buyers
🔵 OpenAI and other AI companies buy chips
Almost every chip sale is immediately recognized as revenue at the time of sale, even if the purchase itself is financed by Nvidia 👀
Investors see surging demand and record revenue, unaware of how much of that amount the company effectively paid to itself – a money loop.
Jensen Huang calls this story ridiculous, while the bear Michael Burry bets against the semiconductor industry, expecting the system to break.
💬 Tension and high volatility in the semiconductor sector may persist until August 26, when Nvidia calms everyone down again with another record earnings report.