Michael Burry, the renowned investor known for his prescient bet against the housing market prior to the 2008 financial crisis—which inspired the film “The Big Short”—has expressed concerns about Nvidia’s stock. Despite recognizing the significant advancements in artificial intelligence and Nvidia’s leading role in providing the GPUs essential for AI processing, Burry believes many companies in the AI sector are engaging in what he describes as “one of the more common frauds of the modern era.”
Burry’s skepticism focuses on the aggressive accounting methods employed by AI companies. He draws parallels to notorious cases like Enron, which manipulated financial statements to conceal debts and inflate profits. According to Burry, the AI industry is using similar tactics by extending the depreciation period for critical equipment like Nvidia’s GPUs, which could ultimately misrepresent profitability.
As the demand for AI technologies skyrockets, tech companies are investing heavily in hardware, especially GPUs, which have become essential for running complex AI models. Nvidia currently commands over 90% of the market share for AI-related GPUs, with reports indicating significant shortages and high demand from cloud providers and data centers.
Burry argues that while businesses often treat the costs of these GPUs as long-term investments—spreading a $6 billion purchase over six years through annual depreciation—this approach may mask the true economic realities. He contends that given the rapid pace of technological advancement, these chips should depreciate more rapidly. For instance, if depreciation were set over three years instead of six, the financial impact would manifest more immediately, potentially revealing a starkly different profitability picture.
While Burry’s current portfolio includes substantial short positions against Nvidia, suggesting he anticipates a decline in the stock’s value, he stands largely alone in his evaluation. The majority of analysts maintain either hold or buy ratings for Nvidia, confident in its future prospects. Palantir’s CEO, Alex Karp, who has also come under scrutiny due to Burry’s positions, criticized Burry’s strategy, labeling it as market manipulation and reaffirming Palantir’s strong performance.
This ongoing debate highlights a divide in perspectives regarding Nvidia’s valuation and the broader implications of accounting practices in the tech industry. As this landscape evolves, investors would do well to consider the arguments from both Burry and those in favor of Nvidia’s current market standing. Only time will reveal the outcome of this complex scenario, but it remains indicative of the challenges faced in an ever-accelerating technological environment.