| In a note by Goldman Sachs analyst Jim Schneider, published Wednesday evening and shared with me , Schneider and the Goldman Sachs team “see a clearer path for the stock to outperform the market over the coming months” following the earnings call. Their 12-month price target: $300. And while Bank of America analyst Vivek Arya raised questions on the call about Nvidia’s substantial obligations (by Arya’s estimate, around $500 billion), a note by Arya shared with the Street ahead of the earnings call found that, in the worst-case scenario, Nvidia’s expected cash flow over the next two years could cover nearly all of those obligations. | “We recognize the scale of this support, and we know some will call this circular financing. We see it differently. We’re going through a major computing platform shift, the creation of one of the most important technologies in human history and these are once in a generation companies.” Nvidia CFO Colleen Kress | | | | I interviewed Wagner this morning about why, in his view, concerns about circular financing in the AI industry are overblown. This interview has been edited for clarity and brevity. Q: Do you think there is any circular financing risk with Nvidia? What do you think of the fact that Nvidia has extended the allowed payback period for its chips from 30 days to 60 days, if anything? A: I’m not worried about that 30 to 60 days because we all know that there are so many bottlenecks out there that there’s probably just a natural progression that the payback period is going on a little bit longer. But, in regard to the circular financing, as I said, I’m not worried about it all. Here’s what’s actually happening: Nvidia isn’t just selling chips anymore. We know that. It’s helping build the market that buys them. That’s not a new phenomenon actually. GE financed some companies, some customers in the ’90s. GE Capital funded jet engine buyers for decades. The difference here is the size, and the size is what’s spooking people. I think that probably stems from the announcement of that $500 billion in third-party capital from Blackstone, BlackRock, Apollo, Goldman. But that’s not Nvidia writing itself a check. Q: So, basically, your argument is Nvidia is lending to customers, but we shouldn’t be concerned about this because this is something other industries have done — and there are a lot of other investors involved? A: It feels as if Nvidia is the median between the parties there, because, again, as [company CEO] Jensen [Huang] said, the capital provided on the $500 billion deal, it’s all third-party capital. It is not Nvidia revenue right now, and that’s just now independent institutional money underwriting that demand. Q: Has anyone modeled what happens to this $500 billion financing platform if interest rates spike or credit markets tighten? Is this something that anyone should be modeling, and, if not, why? A: I personally would not be modeling it because a lot of these companies already have such unencumbered balance sheets. With Google utilizing its equity to finance some of the stuff, their currency’s freaking expensive. Their valuation is very high — higher than what it’s mostly been. So, I can’t blame them for doing that. If rates do go higher and the cost of this capital goes higher, companies are still going to spend it because the demand is there, so I think there’s a lot of pricing inelasticity in regards to the need for financing in this space that is not sensitive to rate movements. I think we saw a lot of this in the Q2 earnings release with Amazon and Microsoft … that [companies are seeing a] return on invested capital. Q: Do you buy that compute supply is the constraining factor, and that there’s no cap on customer demand right now? A: I think there’s plenty of demand out there. Nvidia is not just a hardware company. It’s the software side of this that can continue to get upgraded and whatnot. Everywhere I’ve read and looked, the demand is there. Nvidia really spoke about the growth — obviously, the reaccelerating of Vera Rubin [chips] — but the durability from its guidance [demonstrates] that this just isn’t a story of decelerating in 2027. Q: What do you think of Nvidia’s margins compressing slightly due to the memory chip crunch? A: The market’s just fixated on gross margin optics and cash conversion. But I think the real signal is that enterprise AI adoption has moved from experimental to production. I actually always think that 75 percent gross margin number is kind of the Mendoza line. But you’re right: The guide does step that down to 74 percent — I think, bottoming at 71 to 72 percent. But I think the market is just fixated on that right now. To your point, component costs have been rising significantly, and Nvidia is just experiencing extreme pricing conditions. This newsletter is published by WP Intelligence, The Washington Post’s subscription service for professionals that provides business, policy and thought leaders with actionable insights. WP Intelligence operates independently from The Washington Post newsroom. Learn more about WP Intelligence. | 
