US-based chipmaking giant, Nvidia Corp., in a seven-page memo response, refuted ‘big short’ investor Michael Burry’s claims, who has been arguing that the artificial intelligence (AI) investment boom is replaying the dotcom bubble from the 1990s, reported the news portal CNBC.

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

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

Nvidia’s pushback on Michael Burry

Nvidia allegedly sent its seven-page responses to the sell-side analysts on Wall Street in an effort to push back on Michael Burry’s claims on the company’s stock-based compensation and the depreciation of its GPU chips, reported the news portal, citing Burry’s Substack post.

Nvidia said that the US-based chipmaker repurchased $91 billion shares in 2018, and not $112.5 billion, which Burry claimed, citing that the ‘big short’ investor incorrectly included Restricted Stock Units (RSUs) in the calculation.

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“Nvidia repurchased $91B shares since 2018, not $112.5B; Mr. Burry appears to have incorrectly included RSU taxes,” the company said, cited the news portal.

The company also said that the equity grants to the employees are not to be combined with the performance of the repurchase program.

“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 benefiting from a rising share price does not indicate the original equity grants were excessive at the time of issuance,” said Nvidia, cited in the news portal’s report.

Nvidia’s take on depreciation of GPU chips

According to the CNBC report, Nvidia countered Michael Burry‘s claims, saying that the customers depreciate the GPUs over four to six years based on the real-world longevity and utilisation patterns of these chips.

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The company also said that the older GPUs, like A100s, which were released in 2020, continued at high utilisation rates and retain meaningful economic value beyond the critics’ claims of two to three years.

Burry claimed that Nvidia is allegedly using “circular financing”, and the company’s strategic investment represents a small fraction of revenue, and that the AI startups raise capital from outside investors. Nvidia rejected these allegations, according to the report.

Is Nvidia like Cisco? Burry draws a parallel

‘Big short’ investors Michael Burry drew a parallel between Nvidia and Cisco, a company which was prominent during the dot-com bubble of the late 1990s and early 2000s.

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

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During the Dot-com bubble, Cisco, being a network hardware manufacturer, soon became one of the most valued companies of the time due to its manufacturing strength in making equipment like routers, switches and other materials for the internet needs.

As soon as the Dot-com bubble burst, Cisco shares collapsed more than 85%, according to a Business Insider report.

This comes amid the concerns of Nvidia fueling an AI bubble in the market as companies, including the US-based chipmaker, set their attention on AI investments.

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

Huang also said that if the company delivered bad Q3 results, then it would serve as evidence of an AI bubble, and if it was a great quarter, then the market would call it fueling the AI bubble.

Key Takeaways

  • Nvidia Corp., in a seven-page memo response, refuted ‘big short’ investor Michael Burry’s claims.
  • Nvidia said that the US-based chipmaker repurchased $91 billion shares in 2018, and not $112.5 billion, which Burry claimed.
  • Michael Burry drew a parallel between Nvidia and Cisco, a company which was prominent during the dot-com bubble.