Nvidia (NVDA) simply delivered one other blockbuster quarter, reaffirming its dominance on the middle of the AI growth. But regardless of the blowout numbers, a brand new wave of skepticism has swept throughout elements of Wall Avenue. As analysts digest the corporate’s Q3 outcomes, one specific metric has turn into a focus for bearish arguments: Days Gross sales Excellent, or DSO — the common variety of days it takes an organization to gather fee after a credit score sale.
It’s an accounting measure that not often enters the mainstream dialog, however in Nvidia’s case, critics argue that a rise in DSO is an indication of hassle. Some skeptics have gone so far as evaluating it to early warning indicators seen in main accounting scandals, claiming the rise indicators monetary irregularities and even hints of fraud. Their argument hinges on whether or not Nvidia is taking longer to receives a commission, doubtlessly masking underlying points in demand.
The declare has been loud sufficient to spook some buyers — particularly in a market already delicate to AI-bubble fears. However does the rise in DSO actually sign a crimson flag for Nvidia? Or is that this simply one other case of bears reaching for a story that doesn’t match the basics? Let’s discover out!
Nvidia is a premier know-how agency identified for its experience in graphics processing items and synthetic intelligence options. The corporate is famend for its pioneering contributions to gaming, information facilities, and AI-driven purposes. NVDA’s technological options are developed round a platform technique that mixes {hardware}, programs, software program, algorithms, and companies to supply distinctive worth. The chipmaker has a market cap of $4.32 trillion, making it the world’s most dear firm.
Shares of the AI darling have rallied 35%on a year-to-date foundation. NVDA inventory started the week on a strong footing, climbing greater than 2% on Monday amid reviews that President Donald Trump’s administration could enable the corporate to promote its H200 AI chip to China, with broader market power including additional help. Nonetheless, the inventory gave up these good points on Tuesday after The Data reported that Meta Platforms (META) was in discussions to spend billions on Google’s (GOOGL) AI chips. Right this moment, the inventory is rebounding.
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Nvidia bears have stepped in lately after shares of the AI darling slipped regardless of the corporate delivering blowout quarterly outcomes and steering. And this time, they’re sounding alarms over Nvidia’s enhance in Days Gross sales Excellent (DSO) — from a mean of 46 days in FY2020-2024 to 53 days in Q3 FY26 — arguing that this deterioration indicators potential monetary irregularities and even fraud. Time to fret or just tune out the noise?
Effectively, I feel we should always begin by defining what DSO truly means in accounting and what its implications are. DSO measures how rapidly an organization collects fee after making a credit score sale — an necessary metric in money circulate administration. Calculated by dividing accounts receivable by whole credit score gross sales after which multiplying by the variety of days within the interval, an organization’s DSO signifies how effectively it manages its receivables. Monitoring DSO developments over time can act as an early warning sign for potential issues in an organization’s collections course of or the creditworthiness of its clients.
Normally, a excessive DSO means the corporate is promoting on credit score and taking a very long time to gather funds. And this, in concept, can result in money circulate issues. However did Nvidia face any money circulate points final quarter? The numbers communicate for themselves. The corporate’s free money circulate surged 64% sequentially to greater than $22 billion, its second-highest degree on file. BofA analyst Vivek Arya stated the metric is vital to understanding Nvidia’s true fundamentals.
I doubt that’s satisfied the critics but, so let’s flip our consideration to the numerator of the DSO method — accounts receivable (AR). AR refers to cash owed to a enterprise for items or companies it has supplied however has not but been paid for. In Q3, Nvidia’s AR stood at $33.4 billion, up 44.8% year-over-year and 16% sequentially. That’s one other situation that bears have been highlighting. Nonetheless, BofA’s Arya stated these considerations are misplaced, arguing that AR must be seen relative to gross sales — basically what the DSO metric already measures — relatively than as an absolute determine. And Arya famous that DSO truly “declined to 53 days vs. 54 days QoQ.” So the logical query is: if DSO was even greater within the earlier quarter, why didn’t anybody elevate crimson flags then — and why are critics ignoring the truth that it truly improved sequentially?
And in the event you’re nonetheless involved that Q3 FY26 DSO is greater than the FY2020-2024 common, TF Worldwide Securities analyst Ming-Chi Kuo provides a transparent rationalization. Kuo said that it’s fully affordable for DSO to extend when receivables turn into concentrated amongst just a few massive clients. Notably, the share of Nvidia’s receivables tied to main clients jumped from a mean of 23.8% in FY2020-2024 to 65% in Q3 FY26. The analyst stated the DSO enhance displays the bargaining energy of main accounts, particularly cloud service suppliers (CSPs), which have historically operated with longer fee phrases.
And this brings us to a different level the place the critics are mistaken. They in contrast Nvidia’s DSO with firms whose main clients aren’t CSPs. Kuo famous {that a} extra acceptable comparability is suppliers that additionally serve the identical CSPs — reminiscent of Arista (ANET), Celestica (CLS), and Vertiv (VRT) — whose DSOs usually exceed 60–70 days. Based mostly on this, he stated Nvidia’s 53-day DSO seems fully affordable, common.
In the meantime, over the weekend, Nvidia reportedly shared a seven-page memo with Wall Avenue analysts addressing skeptical buyers’ claims. The chipmaker stated its DSO was broadly in step with its long-term averages. Nvidia additionally argued within the memo that the present accusations resemble “historic accounting frauds (Enron, WorldCom, Lucent) that featured vendor financing and SPVs.”
“NVIDIA doesn’t resemble historic accounting frauds as a result of NVIDIA’s underlying enterprise is economically sound, our reporting is full and clear, and we care about our repute for integrity. In contrast to Enron, NVIDIA doesn’t use Particular Goal Entities to cover debt and inflate income,” the memo stated.
Regardless of a current wave of considerations surrounding Nvidia, from AI-bubble worries and lofty valuations to accounting allegations, Wall Avenue analysts stay strongly bullish on the corporate’s development prospects, as proven by the inventory’s top-tier consensus “Sturdy Purchase” ranking. It’s value noting that the corporate hasn’t obtained any ranking downgrades or price-target cuts following its earnings final week. As a substitute, a flurry of Wall Avenue analysts, together with these at Citi, JPMorgan, and Morgan Stanley, raised their value targets, and Raymond James resumed protection of the inventory with a “Sturdy Purchase” ranking.
General, among the many 48 analysts masking the inventory, 44 charge it a “Sturdy Purchase,” two name it a “Average Purchase,” one recommends holding, and one assigns a “Sturdy Promote” ranking. The common value goal for NVDA stands at $252.33, indicating 39.3% upside potential from present ranges.
Placing all of it collectively, I don’t see Nvidia’s DSO as a priority in any respect. First, when Nvidia is in comparison with suppliers that serve the identical CSPs, its DSO is much decrease, making it greater than affordable. Second, the corporate’s greater DSO versus prior years stems from a larger share of receivables tied to main clients, reflecting these key accounts’ bargaining energy relatively than any accounting fraud. Third, the DSO determine truly improved sequentially in Q3. With that, I reiterate my “Sturdy Purchase” ranking and advocate that buyers make the most of any pullbacks within the inventory.
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On the date of publication, Oleksandr Pylypenko had a place in: NVDA. All info and information on this article is solely for informational functions. This text was initially printed on Barchart.com
