NVIDIA Is Round-Tripping Revenue Through CoreWeave - Strategy or Smoke?

To Investors,

In any business, in any industry, revenue growth can be a dazzling figure, until you look behind the curtain. One term that I recently understood is “round-tripping revenue,” a practice where companies inflate their top lines through reciprocal deals that don’t always create real economic value. Today I wanna look at what round-tripping revenue means, whether it's legal or not, and how it might tie into NVIDIA’s cozy relationship with CoreWeave. Spoiler: it's a fascinating dynamic, and one we can’t ignore.

What’s round-tripping revenue?

Think about it like this: Company A “sells” $1 million in goods to Company B, books the revenue, and then Company B quietly “sells” something back to Company A for the same amount. The cash might not even move—it’s all on paper, a closed loop that pumps up the numbers without changing the underlying reality. The intent is to impress investors, lenders, or analysts with growth that’s more mirage than substance. But this isn’t a new trick— Enron was caught doing something similar with its trades a while back.

Is it legal? Well, it’s a grey area. If the transactions are genuine, disclosed properly, and reflect real business (even if circular), then they’re legal. But if they’re designed to deceive—hiding the lack of economic substance or misrepresenting financial health—they’re fraud, plain and simple, and that's a big problem. Context is everything: transparency and intent separate a clever strategy from a courtroom drama.

Now let’s zoom in on NVIDIA, the most influential company in this AI wave, and CoreWeave, its strategically placed cloud computing chess piece. As I noted in a previous letter, NVIDIA’s been playing a smart game: investing in the ecosystem to seed more customers for its chips. NVIDIA owns 5.97% of CoreWeave, a stake tied to a $100 million investment back in 2023, and CoreWeave’s business is built on buying NVIDIA’s chips to rent out as AI compute power.

Here’s where it gets interesting. CoreWeave’s 2024 revenue hit $1.9 billion, a 737% leap from $229 million in the previous year. Impressive, right? Dig deeper, and 15% of that—about $285 million—comes from NVIDIA itself, with 62% from Microsoft. NVIDIA sells chips to CoreWeave (booking revenue), CoreWeave scales up with debt (often backed by those chips), and then NVIDIA rents back capacity. It’s a tidy cycle: NVIDIA’s sales grow, CoreWeave’s business booms, and the chips keep humming.

Does this smell like round-tripping? Some investors think so. If NVIDIA is juicing its numbers by funneling chips to CoreWeave only to lease them back, it could exaggerate growth without much external demand. Imagine selling $1 billion in GPUs, then paying $300 million annually to use them—revenue looks stellar, but how much is “real”? The optics get murkier since NVIDIA doesn’t name CoreWeave in its filings, though it’s not required to unless the relationship crosses certain thresholds. In any case we know that demand for NVIDIA GPUs is through the roof and NVIDIA is reportedly struggling to fill orders.

So let’s give NVIDIA the benefit of the doubt for a moment. This could be the ecosystem play I flagged earlier—brilliant, and not shady. CoreWeave meets a genuine need: hyperscalers like Microsoft can’t get enough GPUs, and NVIDIA’s supply is tight. By backing CoreWeave, NVIDIA ensures its chips hit the market fast, serving real customers (Microsoft’s 62% chunk proves that). The 15% revenue loop with NVIDIA might just be pragmatic—testing capacity or meeting internal AI needs—so not a scam.

But we can’t overlook the round-tripping risk. If CoreWeave’s growth hinges too much on NVIDIA’s largesse—chips, investment, and rentals—it’s a house of cards if demand shifts. A supply glut or Microsoft building its own stack could expose that cycle’s limits. Is this relationship sustainable? That’s the billion dollar question, because CoreWeave is competing with AWS, Google Cloud, and Mic