Prominent investor Michael Burry has intensified his bearish stance on Nvidia, drawing a stark parallel to Cisco Systems during the dot-com bubble. In a Substack newsletter, Burry highlighted that Nvidia's purchase obligations have skyrocketed to $95.2 billion from $16.1 billion a year earlier. He pointed to total supply obligations, including inventory and purchase agreements, reaching approximately $117 billion—a figure he notes is close to the company's annual operating cash flow.
Burry interprets this as a "business plan problem," arguing the company is locking in supply chain capacity far beyond historical norms before truly knowing the strength of future demand. He compared the situation directly to Cisco in 2000-2001, which secured large supply commitments expecting 50% annual growth. When corporate tech spending collapsed, Cisco was left with billions in excess inventory and write-downs, and its stock never recovered its peak.
"What is happening now is not temporary... This is coming from within the business plan," Burry wrote. He acknowledged Nvidia's current profit margins above 70% could soften a potential downside but warned, "That type of margin would likely revert quickly with a shift in demand."
This warning comes despite Nvidia posting a record-shattering quarter. The company reported Q4 revenue of $68 billion, up 73% year-over-year, with data center revenue hitting $62 billion. It guided for Q1 revenue of $78 billion, surpassing analyst expectations. However, the stock fell 5.5% after the earnings release, reflecting a growing market unease.
The core concern is the sustainability of massive AI infrastructure spending. Nvidia's CFO, Colette Kress, noted that capital expenditure expectations from its largest customers—representing over half of its data center revenue—have increased by nearly $120 billion since the start of the year and are approaching $700 billion annually. Major tech giants like Amazon, Meta, Microsoft, Alphabet, and Oracle are in an AI arms race, with Meta alone committing to $65 billion in AI capex this year.
CEO Jensen Huang pushed back against bubble concerns on the earnings call, asserting that "Compute equals revenues." He described a flywheel where AI infrastructure investment generates returns that justify further spending. Huang highlighted the growth of inference workloads and "physical AI" (robotics, autonomous vehicles) as the next drivers, with the latter already contributing over $6 billion in annual revenue.
Nevertheless, the market is questioning when—or if—the $700 billion in annual AI spending will produce equivalent value for the spenders, creating a paradox where Nvidia executes flawlessly but investor skepticism grows.
