The artificial intelligence boom has been a gold rush unlike any other, catapulting the stock of chipmaker Nvidia into the financial stratosphere. Yet, while the market celebrates what seems like unstoppable growth, one of Wall Street’s most famous skeptics is waving a major red flag, warning that a growing debt market built on this AI foundation is headed for a reckoning.
Jim Chanos, the famed short seller who earned his reputation by calling the collapse of Enron, is sounding the alarm on the complex financing fueling the AI infrastructure buildout. He is predicting that the structure underpinning the current wave of massive chip purchases is fragile, leading him to warn of future “debt defaults.”
A Circle of Cash and Chips
Chanos’s primary concern centers on what some critics are calling a “circular financing” arrangement. He points out that Nvidia, whose graphics processing units or GPUs are the indispensable engine of generative AI, has made direct investments into several of its key customers, including prominent startups like OpenAI, Elon Musk’s xAI, CoreWeave, and Nebius.
These AI developers and cloud providers, many of whom are still losing significant amounts of cash, then turn around and use that capital—or other highly leveraged funds—to purchase more chips from Nvidia. Chanos argues this creates a precarious dependence. As he bluntly puts it, Nvidia is “putting money into money-losing companies in order for those companies to order their chips.”
The legendary investor, whose work on Enron is a cautionary tale in business schools, sees a disturbing parallel in this model to the downfall of telecom giant Lucent in the late 1990s. Lucent’s aggressive strategy of loaning money to its struggling customers to ensure they bought its equipment eventually led to billions in write offs when the dot com bubble burst and payments stopped.
The ‘Achilles Heel’ of Debt
Beyond the direct investments, Chanos identifies a broader threat in the sheer amount of debt being used to fund the AI race. He suggests that the “real Achilles heel” of the entire market is the layering of massive credit and “arcane financial structures” on top of money losing enterprises. To fund their insatiable demand for GPUs, some of Nvidia’s largest customers, including Meta and xAI, are reportedly resorting to off-balance sheet debt and complex financing structures. This tactic, which masks the true level of financial obligation, is the same one that helped bring down Enron decades ago.
Chanos is not alone in his skepticism. Investor Michael Burry, famously chronicled in *The Big Short*, has echoed concerns about a market with “catastrophically overbuilt supply” and insufficient commercial demand to justify the rush.
Nvidia Fires Back
Nvidia has firmly pushed back against these claims. The company issued a detailed memo to analysts explicitly denying that it uses vendor financing to boost its sales, stating its underlying business is economically sound and transparent. It asserts that its customers typically pay for their chips within about 53 days, distinguishing its practices from the multi year loan arrangements that sunk past companies.
For now, demand for Nvidia’s world class chips remains white hot. However, the high stakes debate between the AI market’s biggest bull and one of Wall Street’s most famous bears highlights the enormous financial risk riding on the promise that today’s chip buying spree will translate into tomorrow’s towering profits. If that promise falters, the market for AI debt could be in for a rough landing.