NVIDIA Corporation (NVDA.US) faces skepticism about its accounts receivable days and inventory increase, Guo Mingji refutes: Normal business expansion, not financial anomalies.

Despite NVIDIA Corporation (NVDA.US) announcing explosive third-quarter performance, the stock price fell after the results were released due to an increase in bearish comments surrounding the stock. Some NVIDIA Corporation bears have cited an increase in accounts receivable days and rising inventory as arguments. However, Tianfeng International analyst Ming-Chi Kuo believes that there is no need to worry about these two issues. Kuo stated that these doubts are not well-founded and do not accurately understand the current business structure changes at NVIDIA Corporation. Kuo pointed out that in the third quarter of this fiscal year, NVIDIA Corporation's accounts receivable days increased from an average of 46 days in recent years to 53 days, which some critics view as a sign of "financial deterioration or even fraud." However, this view overlooks the significant increase in concentration of accounts receivable, with accounts receivable from large customers accounting for only 23.8% on average in previous fiscal years, rising to 65% in this quarter. With accounts more concentrated on a few large customers, it is reasonable for the payment cycle to lengthen, especially since cloud service providers (CSPs) have traditionally had longer payment terms, reflecting the stronger bargaining power of large customers rather than financial abnormalities. He added that the bears had chosen the wrong benchmarking companies. The conclusions drawn are distorted as they are not comparing NVIDIA Corporation to companies mainly serving cloud customers. When compared to companies like Arista, Celestica, and Vertiv, which also have CSPs as their main customers, their accounts receivable days typically exceed 60 to 70 days. In comparison, NVIDIA Corporation's current accounts receivable days of 53 days are not only not abnormal but are within a reasonable range. Another concern in the market is NVIDIA Corporation's inventory levels. NVIDIA Corporation CEO Jensen Huang claimed that cloud GPUs are "sold out," yet the company's inventory increased by 32% sequentially, leading to speculation in the market about "weakening demand" or "fabricated data." In response, Kuo pointed out that the bears' comparison benchmarks also contain factual errors. Firstly, in the second quarter of the 2023 fiscal year, inventory did not decrease but increased by approximately 23% to $3.889 billion. Secondly, this quarter's inventory increased by 32%, which is highly consistent with the trend of upstream capacity expansion. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) CoWoS (chip-on-wafer stacking) estimated monthly capacity to increase by 25 to 30% in the third quarter of this year, reaching around 60,000 pieces per month. Furthermore, in this quarter, work-in-process accounted for the highest proportion of NVIDIA Corporation's inventory, reaching 44.2% of total inventory, with the corresponding amount increasing by 98% sequentially to $8.735 billion. This mainly reflects the mass production of the new Blackwell architecture B300 GPU that the company began in the third quarter of this year, rather than inventory build-up. Kuo emphasized that this is not a financial anomaly but reflects NVIDIA Corporation's preparation for strong demand for the B300. In conclusion, Kuo believes that the market's misinterpretation of NVIDIA Corporation's financial indicators and the criticism overlook the changes in customer structure, industry payment term characteristics, and capacity cycle effects. Changes in accounts receivable days and inventory can be explained by business expansion and new product production and are not related to any alleged "financial fraud."