Highlights

Nvidia has responded to investor Michael Burry's suggestions that the AI boom is a repeat of the 1990s dotcom bubble. Burry's claims, prominently discussed on social media, argue that Nvidia is central to an overvaluation reminiscent of past tech bubbles. In a strategic move, Nvidia issued a memo to analysts addressing Burry's criticisms on stock-based compensation, and claiming misuse in valuation estimates and comparisons to past telecom infrastructure expansions. Nvidia insists that current AI investment dynamics differ fundamentally from historical instances.

Sentiment Analysis

• Michael Burry's analysis suggests skepticism and caution towards the AI sector's growth.
• Nvidia's defensive posture indicates the high stakes involved in current tech valuations.
• The debate underscores differing views on AI's long-term viability and market comparisons.

Article Text

The ongoing debate between Nvidia and investor Michael Burry focuses on the sustainability of the current AI investment landscape, with parallels drawn to historic tech bubbles. Michael Burry, known for his prescient bets against the housing bubble, has used social media platforms to argue that the AI surge, with Nvidia as a focal point, echoes the speculative excesses of the 1990s dotcom boom.

Nvidia has proactively addressed these assertions by circulating a detailed memo to analysts. This seven-page document explicitly names Burry in its effort to refute claims that share compensation and depreciation schedules are indicative of an impending market correction. NVIDIA counters that its practices align with industry standards and that their share repurchase figures have been misunderstood by critics.

Furthermore, Burry's commentary on prolonged depreciation and capital expenditures for Nvidia's GPUs was also addressed. The chipmaker argues that equipment usage patterns and longevity are much more robust than estimated, with graphics processing units maintaining economic value beyond two-to-three years.

Meanwhile, Burry continues to liken Nvidia's situation to Cisco's during the telecom buildout of the late 1990s, suggesting that many investors might be conflating supply capacity with genuine demand. His critical perspective warns of inflated expectations and readiness for a potential downturn. Burry posits that companies, similar to telecom firms in the past, may overspend on infrastructure under the assumption of relentless demand growth, which he views skeptically.

Nvidia's memo, initially reported by Barron's, also dismisses the suggestion of 'circular financing', suggesting that strategic investments by AI startups represent a marginal revenue portion. Meanwhile, as AI ventures continue to gather momentum, both supporters and critics engage in a broader conversation about technological investment and market dynamics.

Key Insights Table