Nvidia and Michael Burry's Clash Over AI Investment Risks Intensifies

The confrontation between chipmaker Nvidia and investor Michael Burry is heating up. Burry, known for his role in the "Big Short," has been vocal on social media, comparing the current AI investment fever to the 1990s dot-com bubble with Nvidia at its core. In response, Nvidia has discreetly distributed a memo to analysts, specifically addressing Burry's criticisms.

The seven-page memo, which was first reported by Barron's, lists "Michael Burry on Twitter / X" as its primary source of claims to refute. Burry responded on Substack, maintaining his stance that the frenzy around AI investments mirrors the telecom boom of the late 1990s more closely than the dot-com crash.

Burry has highlighted vast capital expenditures, lengthy depreciation schedules, and soaring valuations as signs that the market is confusing a temporary supply boom with sustainable demand. Nvidia's memo counters Burry's points regarding stock-based compensation and buyback programs.

"NVIDIA repurchased $91 billion worth of shares since 2018, not $112.5 billion; Mr. Burry appears to have incorrectly included RSU taxes," the document clarified, referring to Restricted Stock Units. It added that employee equity grants should not be used to evaluate the buyback program's effectiveness and that Nvidia's compensation practices align with industry standards.

Nvidia also challenged Burry's depreciation arguments, stating that its customers typically depreciate GPUs over a span of four to six years, contradictory to Burry's claim of exaggerated depreciation to justify capital spending. The memo further dismissed Burry's "circular financing" allegations, explaining that Nvidia's strategic investments constitute a minor revenue portion and that AI startups primarily source funds from external investors.

Burry sees Nvidia paralleling Cisco's role during the late 1990s telecom boom, where massive investments were made in infrastructure. He warns that today's AI infrastructure spending, projected at nearly $3 trillion in the next three years, risks overbuilding versus actual demand. Burry's analogy underlines a scenario where vast investments meet insufficient demand, similar to how a small fraction of U.S. fiber capacity was utilized in the early 2000s.

He asserts that the industry's belief in limitless AI demand relies on overly optimistic assessments of data center capabilities and GPU lifespan, stating, "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."

— CNBC's Michael Bloom contributed to this report.