The dispute between Nvidia and its vocal critic, investor Michael Burry, is intensifying.
Burry, known for his role in 'The Big Short,' has used social media to argue that the current wave of investment in artificial intelligence echoes the speculative boom and subsequent bust of the 1990s dot-com bubble, with Nvidia positioned at the epicenter.
In response, Nvidia has discreetly circulated a detailed private memo among analysts, specifically naming Burry as it seeks to counter his numerous assertions.
The seven-page document, identified as Nvidia's response to queries and claims directed at the company, starts by referencing 'Michael Burry on Twitter/X' as its primary source of claims to refute.
Burry, in turn, replied via a Substack post, stating, 'Nvidia emailed a memo to Wall Street sell side analysts to push back on my arguments on [stock-based compensation] and Depreciation ... I stand by my analysis. I am not claiming Nvidia is Enron. It is clearly Cisco.'
Burry has consistently cautioned that today's AI infrastructure craze is more akin to the telecom buildout of the late 1990s than to the dot-com collapses most investors recall. He highlights large capital expenditure plans, extended depreciation timelines, and surging valuations as signs that markets may again be confusing a supply surge with lasting demand.
The Nvidia memo, first disclosed by Barron's, challenges Burry's criticisms of Nvidia's stock-based compensation dilution and stock buybacks.
'NVIDIA repurchased $91B shares since 2018, not $112.5B; Mr. Burry appears to have incorrectly included RSU taxes,' the memo states, referring to Restricted Stock Units. 'Employee equity grants should not be conflated with the performance of the repurchase program. NVIDIA's employee compensation is consistent with that of peers. Employees benefitting from a rising share price does not indicate the original equity grants were excessive at the time of issuance.'
The memo also disputes Burry's assertions about depreciation. It counters Burry's claim that customers are overstating the useful lives of Nvidia's graphics processing units to justify excessive capital expenditures, by stating that its customers depreciate GPUs over four to six years based on observed longevity and usage trends.
Nvidia adds that older models, such as the A100s released in 2020, continue to operate at high utilization rates and retain significant economic value beyond the two to three years that critics suggest.
The memo further dismisses Burry's implications of 'circular financing,' clarifying that Nvidia's strategic investments account for a small portion of revenue and that AI startups generally raise capital from external investors.
Burry has paralleled Nvidia's current market position to that of Cisco, a major hardware supplier that played a crucial role during the capital investment cycle of 1999-2000.
Just as telecommunications firms invested heavily in fiber optic cables and Cisco equipment, driven by projections that 'internet traffic doubles every 100 days,' Burry notes that today's technology giants are projecting nearly $3 trillion in AI infrastructure spending over the next three years, as shared in a Substack newsletter.
The cornerstone of his Cisco analogy is an overexpansion in supply failing to meet expected demand. Burry recalls that less than 5% of U.S. fiber capacity was functional at the peak of the telecommunication buildout. He believes there are similarly optimistic forecasts about continual AI demand based on assumptions about data center power and GPU longevity.
'And once again there is a Cisco at the center of it all, with the picks and shovels for all and the expansive vision to go with it. Its name is Nvidia,' Burry wrote.
— Reporting by CNBC's Michael Bloom contributed to this article.