Nvidia drops 4%, leading chip stocks lower amid renewed worries of circular financing

July 27, 2026 - 20:54

Growing concerns over a potential "circular financing" scheme in the artificial intelligence market sent shockwaves through the semiconductor industry on Tuesday, with Nvidia leading the decline. The chipmaker's stock dropped more than 4%, dragging down peers like AMD, Intel, and Broadcom as investors reassessed the sustainability of the AI boom.

The selloff was triggered by renewed scrutiny of how some companies are funding their massive AI infrastructure purchases. Analysts worry that a portion of the demand for Nvidia's high-end graphics processing units may be fueled by a cycle where startups and cloud providers use loans secured against the very chips they are buying. This practice, known as circular financing, creates a fragile ecosystem where growth is propped up by debt rather than genuine end-user demand.

If the underlying revenue from AI services fails to materialize, the argument goes, the entire house of cards could collapse. Nvidia, which has seen its market capitalization skyrocket on the back of insatiable demand for its AI accelerators, is now facing questions about how much of that demand is real versus financially engineered.

The broader Philadelphia Semiconductor Index also fell sharply, reflecting a market-wide jolt of caution. While Nvidia remains the dominant player in AI chips, the circular financing debate has introduced a new layer of risk that investors are only beginning to price in. For now, the sector is bracing for more volatility as earnings season approaches and companies are forced to justify their spending.