Nvidia refutes ‘big short’ investor Michael Burry’s claims as Cisco parallel fuels AI bubble uncertainty

US-based chip manufacturing giant Nvidia Corp., in a seven-page memo response, denied claims by “big short” investor Michael Burry, who argued that the artificial intelligence (AI) investment boom has revived the 1990s dotcom bubble, the news portal reported. CNBC.

Investor Michael Burry, founder of the now-defunct Scion Asset Management and one of the first to bet against the US housing market in 2008, used a financial instrument such as credit default swaps (CDS).

Burry’s bet paid off big after the housing market crashed due to the subprime mortgage crisis, earning him $100 million in 2008. After finalizing his hedge fund’s registration status, Burry has now turned his attention to a potential AI bubble in the US market.

Nvidia’s reaction to Michael Burry

Citing Burry’s Substack post, the news portal claimed that Nvidia sent seven-page responses to sell-side analysts on Wall Street in an attempt to push back on Michael Burry’s claims about the company’s stock-based compensation and depreciation on GPU chips.

Nvidia said the US-based chipmaker bought back $91 billion worth of shares in 2018, instead of $112.5 billion. Burry suggested that the “big short” investor included the wrong Stock Units (RSUs) in the calculation.

“NVIDIA has repurchased shares worth $91 billion instead of $112.5 billion since 2018; Mr. Burry appears to have incorrectly included RSU taxes,” the company said, according to the news portal.

The company also stated that equity grants given to employees cannot be combined with the performance of the buyback program.

“Employee equity grants should not be confused with the performance of the buyback program. NVIDIA’s employee compensation is consistent with that of its peers. Employees benefiting from the increased share price does not indicate that the original equity grants were excessive at the time of issuance,” Nvidia said, quoted in the news portal’s report.

Nvidia’s handling of depreciation on GPU chips

according to CNBC According to the report, Nvidia disputed Michael Burry’s claims, saying that customers depreciate GPUs in four to six years, depending on the real-world lifespan of GPUs and usage patterns of those chips.

The company also said that older GPUs, such as the A100s released in 2020, continue to see high usage rates and retain meaningful economic value beyond critics’ claims of two to three years.

Burry claimed that Nvidia uses “round financing”, that the company’s strategic investments represent a small portion of revenue, and that its AI startups raise capital from outside investors. According to the report, Nvidia denied these claims.

Is Nvidia similar to Cisco? Burry draws a parallel

‘Big gap’ investors Michael Burry drew a parallel between Nvidia and Cisco, a company that rose to prominence during the dot-com bubble of the late 1990s and early 2000s.

Michael Burry, who was mentioned in the news, said, “I stand by my analysis. I am not claiming that Nvidia is Enron. It is clearly Cisco.”

During the dot-com bubble, Cisco, a networking hardware manufacturer, quickly became one of the most valuable companies of the era due to its manufacturing prowess in producing routers, switches and other supplies for internet needs.

According to one study, Cisco shares crashed more than 85% when the Dot-com bubble burst. Business Content report.

This comes amid concerns that Nvidia will fuel an AI bubble in the market as companies, including the US-based chipmaker, turn their attention to AI investments.

Nvidia CEO Jensen Huang recently said that the US stock market did not appreciate the company’s July-September quarter results, putting the company in a so-called “no-win” situation.

Huang also said that if the company delivers poor results in the third quarter, it will serve as evidence of an AI bubble, and if it is a great quarter, the market will call it fueling the AI ​​bubble.