Nvidia (NVDA) just delivered another successful quarter, reaffirming its dominance at the center of the AI boom. Yet despite the spectacular numbers, a new wave of skepticism has swept parts of Wall Street. As analysts digest the company’s third-quarter results, one metric in particular has become a focal point of bearish arguments: days sales outstanding, or DSO, the average number of days it takes a company to collect payment after a credit sale.
It’s an accounting measure that rarely enters the mainstream conversation, but in Nvidia’s case, critics argue that an increase in DSO is a sign of trouble. Some skeptics have even gone so far as to compare it to the early warning signs seen in major accounting scandals, claiming that the increase indicates financial irregularities or even signs of fraud. His argument depends on whether Nvidia is taking longer to collect, which could mask underlying problems in the lawsuit.
The claim has been strong enough to spook some investors, especially in a market already sensitive to AI bubble fears. But does the increase in DSO really indicate a red flag for Nvidia? Or is this simply another case of bears chasing a narrative that doesn’t match the fundamentals? Let’s find out!
Nvidia is a leading technology company known for its expertise in graphics processing units and artificial intelligence solutions. The company is recognized for its pioneering contributions to gaming, data centers, and AI-powered applications. NVDA technology solutions are built around a platform strategy that combines hardware, systems, software, algorithms and services to provide distinctive value. The chipmaker has a market capitalization of $4.32 trillion, making it the most valuable company in the world.
Shares of the AI favorite are up 35%so far this year. NVDA stock started the week on a solid footing, rising more than 2% on Monday amid reports that President Donald Trump’s administration could allow the company to sell its H200 AI chip to China, with broader market strength adding further support. However, the stock gave back those gains on Tuesday after The information reported that Meta Platforms (META) was in talks to spend billions on Google’s (GOOGL) artificial intelligence chips. Today, the stock is recovering.
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Nvidia bears have recently weighed in after shares of the AI favorite fell despite the company delivering spectacular quarterly results and guidance. And this time, they are sounding the alarm about Nvidia’s days sales outstanding (DSO) increasing, from an average of 46 days in FY2020-2024 to 53 days in Q3 FY26, arguing that this deterioration indicates possible financial irregularities or even fraud. Is it time to worry or just tune out the noise?
Well, I think we should start by defining what DSO actually means in accounting and what its implications are. DSO measures how quickly a company collects payment after making a credit sale, an important metric in cash flow management. Calculated by dividing accounts receivable by total credit sales and then multiplying by the number of days in the period, a company’s DSO indicates how efficiently it manages its accounts receivable. Tracking DSO trends over time can act as an early warning signal about potential problems in a company’s collections process or the creditworthiness of its customers.
In general, a high DSO means that the company sells on credit and takes a long time to collect payments. And this, in theory, can cause liquidity problems. But did Nvidia face any cash flow problems last quarter? The numbers speak for themselves. The company’s free cash flow increased 64% sequentially to more than $22 billion, its second-highest level on record. BofA analyst Vivek Arya said the metric is key to understanding Nvidia’s true fundamentals.
I doubt that has convinced the critics yet, so let’s turn our attention to the numerator of the DSO formula: accounts receivable (AR). AR refers to money owed to a company for goods or services it has provided but has not yet been paid for. In the third quarter, Nvidia’s AR stood at $33.4 billion, up 44.8% year over year and 16% sequentially. That’s another issue that bears have been highlighting. However, BofA’s Arya said those concerns are misplaced, arguing that AR should be viewed in relation to sales (essentially what the DSO metric already measures) rather than as an absolute figure. And Arya noted that DSO actually “declined to 53 days versus 54 days quarter-on-quarter.” So the logical question is: if DSO was even higher in the previous quarter, why did no one raise red flags at that time and why are critics ignoring the fact that it actually improved sequentially?
And if you’re still concerned that the Q3FY26 DSO is higher than the FY2020-2024 average, TF International Securities analyst Ming-Chi Kuo offers a clear explanation. Kuo said it is entirely reasonable for DSO to increase when accounts receivable are concentrated among a few large customers. Notably, the proportion of Nvidia’s accounts receivable tied to major customers rose from an average of 23.8% in fiscal 2020-2024 to 65% in Q3 FY26. The analyst said the increase in DSO reflects the bargaining power of major accounts, especially cloud service providers (CSPs), which have traditionally operated with longer payment terms.
And this brings us to another point where critics get it wrong. They compared Nvidia’s DSO to companies whose primary customers are not CSPs. Kuo noted that a more appropriate comparison is vendors that also serve the same CSPs, such as Arista (ANET), Celestica (CLS), and Vertiv (VRT), whose DSOs typically exceed 60 to 70 days. Based on this, he said Nvidia’s 53-day DSO seems completely reasonable, not unusual.
Meanwhile, over the weekend, Nvidia reportedly shared a seven-page memo with Wall Street analysts addressing claims from skeptical investors. The chipmaker said its DSO was broadly in line with its long-term averages. Nvidia also argued in the memo that the current allegations resemble “historical accounting frauds (Enron, WorldCom, Lucent) that included supplier financing and SPVs.”
“NVIDIA bears no resemblance to historical accounting frauds because NVIDIA’s underlying business is financially sound, our reporting is complete and transparent, and we care about our reputation for integrity. Unlike Enron, NVIDIA does not use special purpose entities to hide debt and inflate income,” the memo said.
Despite a recent wave of concerns surrounding Nvidia, from AI bubble concerns and lofty valuations to accounting allegations, Wall Street analysts remain strongly optimistic about the company’s growth prospects, as shown by the stock’s top-tier consensus “Strong Buy” rating. It’s worth noting that the company has not received any rating downgrades or price target cuts following its earnings last week. Instead, a flurry of Wall Street analysts, including those at Citi, JPMorgan and Morgan Stanley, raised their price targets and Raymond James resumed coverage of the stock with a “Strong Buy” rating.
Overall, among the 48 analysts covering the stock, 44 rate it a “Strong Buy,” two call it a “Moderate Buy,” one recommends Hold, and one assigns it a “Strong Sell” rating. NVDA’s average price target stands at $252.33, indicating an upside potential of 39.3% from current levels.
All in all, I don’t see Nvidia’s DSO as a concern at all. First of all, when you compare Nvidia to vendors that serve the same CSPs, their DSO is much lower, making it more than reasonable. Second, the company’s higher DSO compared to previous years is due to a higher proportion of accounts receivable tied to major customers, reflecting the bargaining power of those key accounts rather than any accounting fraud. Third, the DSO figure improved sequentially in the third quarter. With this, I reiterate my “Strong Buy” rating and recommend that investors take advantage of any pullback in the stock.
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At the time of this publication, Oleksandr Pylypenko held a position at: NVDA. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
