NVIDIA frenemy relation with OpenAI and Oracle
I’ve spent the last 48 hours completely falling down the rabbit hole of NVIDIA’s Q3 Fiscal 2026 earnings report. If you just skim the headlines, everything looks perfect: Revenue is up 62% to $57 billion, and Jensen Huang is talking about a "virtuous cycle of AI."
But I wanted to understand what was really happening under the hood, so I dug into the balance sheet and cross-referenced it with all the news swirling around OpenAI and Oracle. I’m not a professional Wall Street analyst, but even just connecting the dots myself (with the help of Gemini), I’m seeing some cracks in the "AI Alliance." While NVIDIA posts record numbers, it feels like their biggest customers are quietly arming themselves for a breakout.
Here is my take on the hardware market, the "frenemy" dynamics between OpenAI and NVIDIA, and the "circular financing" theories that everyone—including Michael Burry, has been talking about.
Here is a quick summary of the points I'll discuss below:
NVIDIA’s Earnings: Perfection with a side of stress
On the surface, NVIDIA is the absolute monarch of the AI era. You can’t argue with a Data Center segment that now makes up nearly 90% of the company's business. However, when I looked closer at the financials, I found three specific things that stood out to me as "red flags."
The Cash Flow Mystery: NVIDIA reported a massive $31.9 billion in Net Income , but when I checked the cash flow statement, they only generated $23.8 billion in Operating Cash Flow . That is an $8 billion gap where profits aren't converting to cash immediately.
NVIDIA reported a massive , but when I checked the cash flow statement, they only generated . That is an $8 billion gap where profits aren't converting to cash immediately. The Inventory Balloon: I noticed that inventory has nearly doubled this year, hitting $19.8 billion . Management says this is to prep for the "Blackwell" launch, but holding ~120 days of inventory seems like a huge capital drag to me.
I noticed that inventory has nearly doubled this year, hitting . Management says this is to prep for the "Blackwell" launch, but holding ~120 days of inventory seems like a huge capital drag to me. The "Paper" Chase: I calculated their Days Sales Outstanding (DSO), and it has crept up to about 53 days. As revenue skyrockets, NVIDIA is waiting nearly two months to get paid, which suggests they might be extending massive credit terms to enterprise clients to keep the flywheel spinning.
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