Michael Burry, the investor famous for predicting the 2008 housing crash, believes that the U.S. could lose the AI race to China because of chipmaker Nvidia (NVDA). More specifically, he says that Nvidia is promoting the idea that making more powerful and energy-hungry graphics chips is the best way to move AI forward. However, Burry warns that this strategy could backfire. He pointed out that China already has more than double the electric generation capacity of the U.S. and is expanding even faster. This means that America might be spending money on a race it’s not built to win.
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As a result, instead of relying on Nvidia’s power-heavy chips, Burry thinks that the U.S. should focus on building AI-tuned ASICs, which are specialized chips designed to perform certain tasks quickly while using less power. Nevertheless, he believes that Nvidia has too much control over the AI industry because of its strong relationships with key players. In addition, Burry has raised concerns about Nvidia’s business practices that include stock-based compensation and customer deals that may inflate chip demand.
He also suspects some buyers are stretching the depreciation periods of the chips just to make their earnings look better. Therefore, Burry revealed a short position against both Nvidia and Palantir (PLTR) earlier this year, saying that the AI industry is creating a tech bubble similar to past market manias. And although Nvidia responded to his concerns in a leaked memo, Burry called it weak and full of flawed arguments.
What Is a Good Price for NVDA?
Turning to Wall Street, analysts have a Strong Buy consensus rating on NVDA stock based on 39 Buys, one Hold, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average NVDA price target of $263.58 per share implies 43.8% upside potential.
