US-based chipmaking giant Nvidia Corp. has directly addressed and refuted claims made by 'big short' investor Michael Burry, who has been vocally asserting that the current artificial intelligence (AI) investment boom is eerily reminiscent of the dot-com bubble of the late 1990s. Nvidia's comprehensive, seven-page memo response was reportedly sent to sell-side analysts on Wall Street to counter Burry's allegations, which were cited in a CNBC news report based on Burry's Substack posts.

Michael Burry, renowned as the founder of the now-dissolved Scion Asset Management, gained significant prominence for being one of the early investors to accurately predict and bet against the US housing market collapse in 2008. His strategic use of financial instruments, such as credit default swaps (CDS), paid off handsomely, earning him an estimated $100 million when the subprime mortgage crisis unfolded. After winding down his hedge fund, Burry has redirected his focus towards what he perceives as a burgeoning AI bubble in the US market, drawing parallels to historical market anomalies.

Nvidia's pushback specifically targeted several of Burry's financial assertions. Firstly, regarding stock-based compensation and share repurchases, Burry claimed that Nvidia had repurchased $112.5 billion in shares since 2018. Nvidia, however, corrected this figure, stating that the company repurchased $91 billion in shares during that period. Nvidia clarified that Burry's calculation erroneously included Restricted Stock Units (RSUs) as part of the repurchase program. The company emphasized, "Nvidia repurchased $91B shares since 2018, not $112.5B; Mr. Burry appears to have incorrectly included RSU taxes." Furthermore, Nvidia stated that employee equity grants should not be confused with the performance of its repurchase program, asserting that its employee compensation practices are consistent with industry peers and that employees benefiting from a rising share price does not imply excessive original equity grants.

Secondly, Nvidia addressed Burry's claims concerning the depreciation of its GPU chips. The company countered that customers typically depreciate these Graphics Processing Units over a period of four to six years. This timeline, Nvidia argued, is based on the real-world longevity and actual utilization patterns of these chips. Nvidia further highlighted that older GPU models, such as the A100s initially released in 2020, continue to maintain high utilization rates and retain significant economic value, far beyond the two-to-three-year depreciation period suggested by critics.

Burry also alleged that Nvidia was engaged in "circular financing." Nvidia firmly rejected these allegations, explaining that its strategic investments constitute only a small fraction of its total revenue. The company clarified that AI startups typically raise capital from external investors rather than through a circular financing model involving Nvidia.

A critical aspect of Burry's argument involves drawing a historical parallel between Nvidia and Cisco, a company that was a prominent player during the infamous dot-com bubble. Burry explicitly stated, "I stand by my analysis. I am not claiming Nvidia is Enron. It is clearly Cisco." During the late 1990s and early 2000s, Cisco, a leading network hardware manufacturer, surged to become one of the most valued companies globally due to its essential role in manufacturing equipment like routers and switches for the internet infrastructure. However, with the bursting of the dot-com bubble, Cisco's shares plummeted by over 85%, according to a Business Insider report. This comparison underscores Burry's concern that Nvidia might be fueling a similar speculative bubble in the AI market.

The debate surrounding Nvidia's valuation comes amidst broader concerns about an AI bubble, particularly as numerous companies, including Nvidia, heavily invest in AI technologies. Nvidia CEO Jensen Huang has also commented on the market's perception of the company. Huang recently noted that the US stock market did not adequately appreciate Nvidia's July to September quarter results, creating what he described as a "no-win" situation. He elaborated that if the company had delivered poor Q3 results, it would have been interpreted as evidence of an AI bubble, whereas a strong quarter was conversely seen as merely fueling the perceived AI bubble.