"Unlike Enron": Nvidia rejects accusations from well-known investor
Michael Burry became known when he bet on a stock market crash before the 2008 financial crisis. Now he has taken on Nvidia, and the corporation is reacting.
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Nvidia has defended itself against accusations from US hedge fund manager Michael Burry, who compared the semiconductor manufacturer's business model to one of the biggest fraud scandals in the US economy. In a letter to investors, the US corporation assured that it does not hide debts and artificially inflate revenues like the former energy company Enron, reports the US financial magazine Barron's. This concerns the contracts with various companies in the AI sector, which have come under criticism, in which Nvidia invests billions, and in return, they buy billions of Nvidia products. Burry, who gained worldwide fame during the 2008 financial crisis, has already stated that he stands by his criticism.
Criticism of Nvidia's AI Business
At its core, the dispute is about the valuation of Nvidia deals, in which billions are invested in AI companies, which in turn strengthen Nvidia's business. Considering the warnings about an AI bubble, the problematic nature of this approach has been pointed out for some time. However, in a newly established blog, Burry also criticized that AI companies assume too long a usage period for Nvidia products. They would have to amortize their purchase price much faster than is repeatedly claimed. Finally, Burry also pointed out that Nvidia is buying back its shares on a large scale and simultaneously compensating with shares, which has diluted the price.
Although it is merely the criticism of a single investor, Nvidia has apparently deemed it necessary to address it specifically. In a letter to investors, the corporation counters several points of criticism one by one Barron's reports. For example, Burry mistakenly included the taxes paid for the share buybacks in the total price. Furthermore, Nvidia points out that Nvidia neither controls the AI companies in which it invests nor is it their main source of funding. And, "unlike Enron," it does not use special financial structures to conceal debt. The Verge points out that, that Nvidia's approach, unlike Enron's, can be legal and yet highly problematic.
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After the Nvidia letter became public, Burry assured to stand by his assessment. He intends to explain it in more detail in his blog, the content of which can only be viewed for a fee. Just a few days ago, Burry also publicly bet large sums of money against a further rising Nvidia stock price, so he is not a disinterested observer. At the same time, however, he articulates increasingly widespread concerns about an AI bubble, at the center of which is Nvidia. Last week, the euphoria over Nvidia's extremely positive business figures lasted only a few hours for this reason as well.
(mho)
