Michael Burry Challenges Nvidia's AI Economics Amid Record Earnings

Nvidia refutes 'Big Short' investor Michael Burry's bearish case. Here's what the company says

Nvidia defended the economics of the artificial intelligence spending boom after "Big Short" investor Michael Burry questioned the life cycle of its advanced chips and whether buyers will ever see a profit on them. On the earnings call late Wednesday, Chief Financial Officer Colette Kress said Nvidia's hardware remains productive far longer than critics claim, thanks to efficiencies driven by the company's CUDA software system. "The long useful life of NVIDIA's CUDA GPUs is a significant Total Cost of Ownership advantage over accelerators," Kress said, according to transcript of the call by FactSet. "CUDA's compatibility in our massive installed base extend the life [of] NVIDIA systems well beyond their original estimated useful life. Thanks to CUDA, the A100 GPUs we shipped six years ago are still running at full utilization today, powered by vastly improved software stack." Kress said that Nvidia's CUDA platform preserves the economic life of its Graphics Processing Units, meaning customers get more long-term value even as new generations of chips deliver big efficiency gains. Nvidia's argument addressed a growing concern on Wall Street: as Nvidia's chips make rapid advances in power and efficiency, earlier generations may lose value before corporate buyers can monetize their AI investments. "Nvidia did a good job hinting at how depreciation schedules at their big customers are accurate as software updates prove to extend lives of older chips," analyst Ben Reitzes at Melius Research said in a note to clients. Burry's Thesis Still, Burry and other critics are seizing on a contradiction. Nvidia says the newest chips are superior in performance, efficiency and capability, at the same time as it promises that older chips remain economically valuable. One of those defenses has to give. Burry agreed with this idea in an email to CNBC. The widely followed investor turned heads recently by disclosing a sizeable bearish position in Nvidia as well as Palantir . He took to X again following Nvidia's blockbuster quarterly report, repeating his thesis that newer GPUs consume far less power, making older hardware uncompetitive. Therefore, companies may feel they have to invest in AI hardware to keep up, not because the investments are profitable yet. "Just because something is used does not mean it is profitable," Burry wrote on X. "If that is the direction you are going, chances are you have to be doing it, and it is not pleasant."

Michael Burry slams Nvidia's Q3, warns of giant accounting gaps in stock-based compensation

Michael Burry Nvidia stock-based compensation issue: Renowned investor Michael Burry has sharply criticized Nvidia's accounting, particularly stock-based compensation, following its stellar quarterly results. He contends the AI chip giant's reported costs are significantly understated, potentially halving its earnings when dilution is fully considered. Burry also flagged broader concerns about the AI industry's interconnected financial dealings. Michael Burry Nvidia stock-based compensation issue: The Big Short investor Michael Burry is now aiming at Nvidia in the wake of the AI chip giant's blowout quarterly results. As Nvidia's stock jumped more than 5% in extended trading, Burry used social media X to launch a sharp critique of the company's accounting practices, particularly around stock-based compensation (SBC), a topic he's been vocal about ahead of the November 25 launch of his new venture, as per a report. Burry pointed out that Nvidia has reported $20.5 billion in SBC since early 2018, but he argued the real cost is far higher, as per a Stocktwits report. The hedge fund manager noted that the company repurchased $112.5 billion worth of stock during the same period, yet still ended up with 47 million more shares outstanding than before, according to the report. To him, that suggests Nvidia spent heavily just to offset dilution, making the real SBC cost closer to $112.5 billion, not the reported figure, as reported by Stocktwits. ALSO READ: Fed rate cut uncertainty surges after BLS cancels October jobs report and delays November data Burry went further, saying Nvidia earned $205 billion in net income and $188 billion in free cash flow over the period, assuming all capex was growth-related, as per the report. If the full dilution impact is considered, he claimed Nvidia's earnings could be cut in half, but not everyone agreed, and users on X argued that Burry was double-counting the effect, as per the Stocktwits report. The investor also resurfaced broader concerns about the AI industry's financial ecosystem. Sharing a Bloomberg-based chart titled "How Nvidia and OpenAI Fuel the AI Money Machine," he highlighted a web of more than $1 trillion in intertwined investments, partnerships, and capital flows across Microsoft, AMD, Oracle, CoreWeave, xAI, Mistral, Figure AI, and others, as reported by Stocktwits. ALSO READ: BlackRock Bitcoin ETF records $523 million biggest one-day outflow as BTC drops below $90,000 Burry wrote that, "Every company listed below has suspicious revenue recognition. The actual chart with ALL the give-and-take deals would be unreadable. The future will regard this a picture of fraud, not a flywheel," adding, "True end demand is ridiculously small. Almost all customers are funded by their dealers. If you can name OpenAI's auditor in 1 hour you win some pride," as quoted in the report. His criticism arrived as another large circular deal emerged this week: Anthropic agreed to buy $30 billion in Azure compute from Microsoft, while Nvidia and Microsoft committed up to $10 billion and $5 billion, respectively, in new investments into the startup, as per the Stocktwits report. Nvidia CEO Jensen Huang dismissed concerns on the earnings call, saying the company sees "something different" and insisting its balance sheet can support its partners. All investments, he said, are designed to expand the reach of Nvidia's CUDA ecosystem, as reported by Stocktwits. Burry also revisited another issue he's raised recently, hyperscalers extending the useful life of AI infrastructure to boost reported profits, as per the report. He argued that using older chips does not necessarily mean they are generating meaningful value, as per Stocktwits. For example, he noted Nvidia's A100 processors consume two to three times more power than H100s, while the H100 is about 25 times less energy efficient than Nvidia's next-generation Blackwell chips for inference, as per the report. Why is Michael Burry criticizing Nvidia now? Because Nvidia posted a strong quarter, and Burry believes their accounting, especially SBC, isn't reflecting the full economic impact. Does Burry think Nvidia overstated its earnings? Yes. He argues earnings could be cut in half if the full dilution effect is included. (You can now subscribe to our Economic Times WhatsApp channel)

Michael Burry warns of 'suspicious revenue recognition' after Nvidia earnings By Investing.com

Investing.com-- Michael Burry on Wednesday evening warned that true end demand for artificial intelligence was far smaller than what was being presented, while also accusing major technology firms of misrepresenting their revenue. Burry's comments came shortly after bumper quarterly earnings from AI bellwether Nvidia, which sparked a global rally in technology shares. Burry, famous for predicting and trading the 2008 subprime mortgage crisis, posted a picture of a graphic outlining AI investing deals between several major technology companies, including Microsoft Corporation (NASDAQ:MSFT), OpenAI, Oracle Corporation (NYSE:ORCL), and NVIDIA Corporation (NASDAQ:NVDA), while accusing them all of "suspicious revenue recognition." "The future will regard this a picture of fraud, not a flywheel. True end demand is ridiculously small. Almost all customers are funded by their dealers," Burry said. In a later post, he accused OpenAI of being the "linchpin," while also raising questions over the AI startup's auditor. Burry, who returned to the public eye in November after a years-long hiatus, dropped several warnings on an AI-fueled bubble in tech valuations. He disclosed short positions against Nvidia and Palantir Technologies Inc (NASDAQ:PLTR), while also accusing major AI spenders of misrepresenting the depreciation of their data center assets. His warning on Wednesday came just hours after Nvidia clocked stronger-than-expected third-quarter earnings, with the AI major also presenting a stronger-than-expected outlook on robust AI-fueled demand. Nvidia CEO Jensen Huang pushed back against speculation over an AI bubble, claiming that demand for the company's products extended beyond just AI hyperscalers. Nvidia's shares surged over 5% in aftermarket trade following the earnings, with broader tech and AI stocks all clocking strong gains. U.S. stock index futures also shot up after the print.