The dispute between Nvidia and notable investor Michael Burry is intensifying. Burry, known for his role in the 'Big Short,' has drawn comparisons between the current surge in artificial intelligence investments and the 1990s dot-com bubble, positioning Nvidia as central to the trend. In response, Nvidia has discreetly distributed a detailed memo to analysts countering Burry's assertions.
The seven-page document, titled 'Questions and Claims We've Received,' begins by addressing Burry's remarks on social media, specifically citing 'Michael Burry on Twitter / X' as its first point of contention.
Burry has taken to his Substack page, noting, 'Nvidia emailed a memo to Wall Street sell side analysts to push back on my arguments on [stock-based compensation] and Depreciation ... I stand by my analysis. I am not claiming Nvidia is Enron. It is clearly Cisco.'
Burry has consistently cautioned that the current AI infrastructure surge resembles the telecom buildout of the late 1990s more closely than the dot-com collapses investors typically recall, citing significant capital expenditure plans, extended depreciation schedules, and escalating valuations as indicators of markets erroneously equating a supply surge with lasting demand.
The Nvidia memo, initially reported by Barron's, addresses Burry's criticism regarding Nvidia's stock-based compensation dilution and stock buybacks.
'NVIDIA repurchased $91 billion in shares since 2018, not $112.5 billion; Mr. Burry appears to have incorrectly included RSU taxes,' the memo asserted, referencing Restricted Stock Units. 'Employee equity grants should not be conflated with the performance of the repurchase program. NVIDIA's employee compensation aligns with industry standards. Employees benefiting from a rising share price does not imply that the initial equity grants were excessive at the time of issuance.'
The memo also tackles Burry's depreciation life claims. In response to Burry's assertion that customers are exaggerating the useful lives of Nvidia's graphics processing units to justify excessive capital expenditures, Nvidia maintains that its customers depreciate GPUs over four to six years based on real-world sustainability and utilization.
Nvidia highlights that older GPUs such as A100s, released in 2020, continue to function at high utilization rates and maintain significant economic value beyond the two to three years critics suggest.
The memo further refutes Burry's insinuations of 'circular financing,' stating that Nvidia's strategic investments constitute a minor share of revenue, with AI startups mainly raising capital from external investors.
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Burry contends that Nvidia now occupies a position similar to Cisco's during the 1999-2000 period when it was a pivotal hardware supplier fueling significant capital investments.
As telecommunication companies invested heavily in fiber optic infrastructure based on optimistic internet traffic growth forecasts, Burry compares this to today's projected $3 trillion investment in AI infrastructure over the next three years, emphasizing the risk of overbuilt supply facing insufficient demand.
'And once again there is a Cisco at the center of it all, with the picks and shovels for all and the expansive vision to go with it. Its name is Nvidia,' Burry wrote.
— CNBC's Michael Bloom contributed reporting.