Michael Burry Criticizes Nvidia, Claims ‘True Demand Is Shockingly Low’
Michael Burry, renowned for his role in predicting the housing market collapse depicted in “The Big Short,” has raised concerns over Nvidia’s recent performance. His skepticism is directed at the chipmaker’s reported earnings and the broader artificial intelligence (AI) market.
Michael Burry Critiques Nvidia’s Financial Health
Nvidia (NVDA) reported robust sales and earnings for its fiscal third quarter, beating analysts’ expectations. The company also provided an optimistic forecast for the fourth quarter, suggesting resilience in a time of heavy scrutiny regarding its valuation. However, Burry’s assessment counters this optimism.
Concerns Over Chip Lifespan and Value
During the Q3 earnings call, Nvidia’s CFO, Colette Kress, stated that the company’s CUDA software enables older chips to support new software and AI applications. She highlighted that their A100 GPUs, launched six years ago, remain in high demand. Despite this, Burry contests that continued use of older chips does not correlate with their long-term value.
- Burry likened this situation to airlines that hold onto older aircraft during peak times, despite those planes yielding minimal profit.
- He noted that older chips like the A100 consume more electricity compared to newer models, which may lead to increased operating costs for users.
Critique of AI-Related Agreements
Burry also criticized the multi-billion-dollar agreements involving Nvidia and major AI players like OpenAI, Microsoft, and Oracle. He suggested that actual demand may be overstated due to the intricate relationships between these companies, where funding from Nvidia supports their purchases. This creates a misleading representation of market demand.
Dilution of Shareholder Value
Another focal point of Burry’s critique centers on stock dilution. Since 2018, Nvidia has repurchased approximately $113 billion of its stock. However, the number of shares has increased by 47 million. Burry articulated that while Nvidia’s buybacks aim to mitigate stock-based compensation (SBC), the resulting dilution has significantly impacted shareholder earnings.
Market Outlook Despite Skepticism
Despite Burry’s critical viewpoints, analysts maintain a positive outlook for Nvidia. Currently, NVDA holds a “Strong Buy” consensus rating on TipRanks, bolstered by 39 Buy ratings, one Hold, and one Sell recommendation. The average price target for Nvidia stands at $257.33, indicating a potential upside of 43.9% from its current trading price. Year-to-date, Nvidia shares have increased by 33.2%.
As Burry’s criticisms unfold, the ongoing discourse around Nvidia’s strategies and the overall health of the AI market continues to evolve. Investors and analysts alike remain vigilant, weighing Burry’s insights against the prevailing optimism in the tech sector.
