Analysis of accounting practices between Microsoft and Nvidia regarding chip shipments, revenue recognition, and free cash flow reporting quality.

Read a few tweets from this friend regarding Microsoft's earnings reports; the analysis is quite interesting. Simply put, Nvidia shipped chips to Microsoft first (without actual payment), recognizing revenue and accounts receivable according to standards. Microsoft recorded this as accounts payable and capital expenditure. The chips are actually still stored by Microsoft but not yet put into use. Kakashii's core finding is based on an accounting principle: Free Cash Flow = Operating Cash Flow - CapEx Conventional practice: Company buys equipment -> Pays cash -> Recorded as CapEx > Free cash flow decreases. Microsoft's approach: Company buys equipment -> Temporarily does not pay (recorded as accounts payable) > No cash outflow -> CapEx cash expenditure item is smaller -> Free cash flow appears very high. But if it is truly consignment in the strict sense, it usually means risks and ownership have not fully transferred, making it difficult for Nvidia to recognize it as revenue. But Nvidia's financial report shows a surge in revenue, indicating that Nvidia has already recognized the sales.