Nvidia denies accusations that investments in artificial intelligence are a bubble

The fight between Nvidia and one of the most vocal opponents, investor Michael Burry, is escalating.

Next a series of investor posts on social media “Big Short”. Claiming that the AI ​​investment boom is recreating the 1990s dot-com bubble with Nvidia at its center, the chipmaker quietly sent out a private note to analysts who explicitly name-checked Burry to refute many of his claims.

Nvidia’s seven-page response to “questions and claims received” began by citing “Michael Burry on Twitter/X” as the first set of source documents the company sought to debunk.

For his part, Burry responded in a post on Substack that “Nvidia emailed a note to Wall Street sell-side analysts to refute my arguments regarding [stock-based compensation] and Depreciation… I stand by my analysis. I’m not saying Nvidia is Enron. That’s clear Cisco“

Burry has repeatedly warned that today’s artificial intelligence infrastructure craze reflects far more of the rise of telecommunications in the late 1990s than investors remembered. He pointed to massive capital spending plans, extended depreciation schedules and skyrocketing valuations as evidence that markets are once again confusing a supply boom with sustained demand.

Nvidia’s memo, first reported by Barron’s, was a response to Burry’s criticism of the dilution of Nvidia’s stock-based compensation and share buybacks.

“NVIDIA has repurchased $91 billion of stock since 2018, not $112.5 billion; it appears that Mr. Burry incorrectly included RSU taxes,” the note says, referring to restricted stock units. “Employee equity grants should not be confused with the results of a buyout program. NVIDIA employee compensation is consistent with that of employees within the same company. Just because employees benefit from a rising stock price does not mean that the original equity grants were excessive at the time of issuance.”

The memo also questioned Burry’s claims regarding the depreciation period. To Burry’s accusation that customers are overstating the lifespan of Nvidia GPUs to justify uncontrolled capital spending, Nvidia responds that its customers amortize GPUs over four to six years based on actual durability and usage patterns.

Nvidia added that older GPUs, such as the A100 released in 2020, continue to operate at high utilization rates and retain significant economic value well beyond the two to three years that critics claim.

The memo also rejected Burry’s suggestion of “circular financing”, arguing that Nvidia’s strategic investments represent a small fraction of revenues and that AI startups raise capital mainly from external investors.

Today’s Cisco

Burry said he believes Nvidia is now in the same position that Cisco, a key hardware supplier that fueled a massive capital investment cycle, was in 1999-2000.

Just as telecom companies spent tens of billions of dollars laying fiber-optic cables and purchasing Cisco equipment based on projections that “internet traffic will double every 100 days,” today’s hyperscalers are promising nearly $3 trillion in AI infrastructure spending over the next three years, Burry said in the Substack newsletter.

The crux of his Cisco analogy is excess supply that meets much less demand than expected. At the beginning of the 21st century, less than 5% Burry said U.S. fiber optic capacity was operational. Today, he believes the industry’s belief in limitless demand for artificial intelligence is based on similarly optimistic assumptions about data center power and GPU lifespan, he said.

“And once again at the center of it all is Cisco, with picks and shovels for all and an expansive vision to go with it. His name is Nvidia,” Burry wrote.

– CNBC’s Michael Bloom contributed reporting.