To The Moon

🌟🌟🌟Michael Burry is back in the news, stating that the current AI boom is a bubble, citing concerns about aggressive accounting practices by hyperscalers, stock based compensation (SBC) and potential overbuilding of AI infrastructure.

In response, Nvidia $NVIDIA(NVDA)$  has refuted Burry's claims in a memo to Wall Street Analysts, defending its business and reporting practices.

Does Michael Burry's argument hold up?

Arguments supporting Burry:

Aggressive depreciation : Burry claims hyperscalers like Meta and Oracle extend the useful life of AI hardware beyond its realistic lifespan to boost reported earnings, masking the need for costly upgrades.  Some analysts note that hyperscalers have indeed extended depreciation schedules.

Dilutive stock based compensation : Burry highlights that Nvidia's significant share buy backs largely offset Stock Based Compensation.  This means that buybacks do not effectively return as much capital to shareholders as the headline figures suggest.

Circular funding : Burry points to a web of strategic investments and partnerships within the AI ecosystem, questioning whether demand is truly independent or artificially stimulated.

Historical precedent: Burry compares the AI boom to the dot com bubble's run up with Nvidia in the role of Cisco, the key "picks and shovels" provider that suffered after the crash.

Nvidia's Rebuttal on Burry's Claims

GPU longevity : Nvidia counters that older GPUs like the A100, remain highly utilised for less intensive workloads. These still hold economic value, justifying longer depreciation schedules.  Software updates can also improve performance over time, extending the chips' functional life. 

Should Investors Be Concerned Over Nvidia's Downward Trend? 

While recent short term downward trend on Nvidia can be concerning, Nvidia continues to have strong fundamentals.  Analysts are also maintaining a positive long term outlook for Nvidia.  This is due to Nvidia's dominant position in the growing AI market. 

Reasons for Optimism for Nvidia 

Strong underlying fundamentals :  Even amid the sell off, Nvidia's business continues to perform strongly.  CEO Jensen Huang was citing "off the charts" demand for Nvidia's new Blackwell chips.  Nvidia is still on track for a half a trillion dollars in AI chip orders over 2025 to 2026.

Robust AI market outlook :  The overall AI market is still projected for significant long term growth, with forecasts reaching into trillions of dollars by 2030.

TechInsights predicts continued strong growth in the AI hardware sector in 2025 and 2026 driven by enterprise AI adoption and ongoing data center expansion. 

Concluding Thoughts 

The recent volatility is a classic example of a market weighing Nvidia's strong performance against macroeconomic and market narrative risks.  

Whether the downturn is a buying opportunity or a red flag, depends on an individual investor's risk tolerance and long term outlook on the AI market. 

While Michael Burry's warnings are a valid source of market scrutiny, Nvidia's financial strength and market leadership suggests its long term potential remains significant. 

Investors should consider both perspectives and not panic, based on short term price movements alone. 

As Benjamin Graham famously said,  "In the short run, the market is a voting machine but in the long run it is a weighing machine." 

As a long term investor of Nvidia, this wisdom offers me a valuable perspective during periods of market noise and volatility and to stay calm.  

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