- Investor Michael Burry argues the current surge in AI demand is temporary and driven by a phase of benchmarking and “tokenmaxxing.”
- He warns that NVIDIA faces significant risks from customer concentration and massive, non-cancellable supply chain commitments exceeding its cash flow.
- Despite recent blowout financial results, NVDA stock declined last week and has underperformed its peers year-to-date.
Michael Burry, the investor famed for “The Big Short,” issued a fresh warning on Saturday, arguing the AI-driven market rally faces significant, unsustainable risks. He detailed his concerns in a new Substack post, stating current demand is a temporary trend. Burry believes the elevated AI-linked demand is driven by benchmarking, trace-harvesting, and “tokenmaxxing.”
Consequently, Nvidia is overly reliant on a concentrated set of buyers whose demand is being distorted by this training phase. He pointed out that a 20% cut in Microsoft‘s capital expenditure on Nvidia chips would result in a 4.2% hit to total revenue. Burry also flagged potential inventory front-loading based on accounts receivable data.
Meanwhile, the company has committed $119 billion to custom, non-cancellable lines at TSMC. Its total forward non-cancellable commitments stand at $182 billion, which exceeds its annual operating cash flow. This creates severe financial vulnerability if demand drops, Burry argued.
Add to the blog post, Moody’s found that the five major hyperscalers have $662 billion in off-balance sheet commitments. Burry said these “will become very real in a correlation event.” Last week, Nvidia reported blowout quarterly results and announced an $80 billion share buyback.
Yet, for a variety of reasons, the stock barely moved higher. NVDA shares declined 4.3% last week, even as retail sentiment moved to ‘extremely bullish.’ Year to date, the stock has added 15.5%, underperforming both the iShares Semiconductor ETF and the S&P 500 Index.
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