A buried Nvidia warning could shake the entire AI buildout

Nvidia released a concealed seven-page enactment to Wall Street analysts successful which it fought backmost against the "Big Short" investor's concerns astir an AI bubble, what helium refers to arsenic "distorted earnings." The spot elephantine wrote to him by sanction and said that his calculation was wrong:

The memo besides pushed backmost against his appraisal of however agelong clients support Nvidia's chips successful operation. It informed investors that hyperscalers depreciate GPUs implicit a play of 4 to six years and that older products "continue to tally astatine precocious utilization rates and clasp meaningful economical value."

Burry, connected the different hand, has doubled down, claiming that Nvidia "is intelligibly Cisco," not Enron, and that concern successful AI infrastructure is similar the telecom overbuild of the precocious 1990s.

But the existent conflict isn't astir bubbles.

The utile beingness of Nvidia's processors is simply a soundless accounting prime that reveals however lucrative the AI property really is.

Burry is making his constituent crystal wide aft months of warnings connected X and a caller "Cassandra Unchained" Substack. He says that the emergence successful AI infrastructure is much similar the telecom overbuild of the precocious 1990s than the dot-com banal bubble itself.

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Two main aspects marque up his argument:

• Depreciation lifespans are excessively long: Burry notes that AI hardware becomes commercially useless successful 2–3 years, whereas unreality platforms tin marque specified assets past for 5–6 years.

• Earnings are inflated: Those longer utile lives flatten depreciation, boosting margins and overstating profitability by an estimated $176 cardinal crossed respective large companies betwixt 2026 and 2028, according to Burry.

• Nvidia is “Cisco, not Enron”: Burry isn't suggesting Nvidia is doing fraud. He's arguing that it is astatine the halfway of a superior rhythm that mightiness spell excessively far, arsenic Cisco did during the fibre boom.

He thinks that investors are confusing a proviso roar with semipermanent demand, and the grounds is successful the depreciation schedules.

Nvidia sent a seven-page enactment to Wall Street analysts that was shared with the property by galore quality publications. The corp talks to Burry by sanction and straight refutes what helium says.

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Nvidia's main arguments successful their response:

• "Not Enron." Nvidia denies immoderate proposition of accounting fraud.

• Math for buybacks. The concern claims it has bought backmost $91 cardinal worthy of shares since 2018, not the $112.5 cardinal that Burry said. It says that Burry wrongly added taxes connected restricted banal units.

• Claims of circular backing are exaggerated. Nvidia says that its strategical equity investments marque up conscionable a tiny portion of institution income.

• The detractors are wrong. GPUs past longer than they say. Nvidia argues that hyperscalers usually constitute disconnected GPUs implicit 4 to six years. They besides notation to earlier processors similar the 2020 A100 that are inactive being utilized a lot.