Chip giant Nvidia (NVDA) has finally responded to Michael Burry’s repeated allegations of accounting malpractices among hyperscalers and what he calls an overinflated artificial intelligence (AI) bubble. Over the weekend, Nvidia’s investor relations team sent a seven-page memo to Wall Street analysts, firmly rejecting Burry’s accusations as well as those from skeptical investors.
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Nvidia also rejected claims that its current accounting situation is similar to past accounting scandals involving Enron, WorldCom, and Lucent, which used tactics like vendor financing and special purpose vehicles (SPVs). The company emphasized that its business remains financially robust, its reporting is transparent and comprehensive, and it values its reputation for integrity.
Nvidia Pushes Back on Burry’s Claims
After Nvidia reported stellar third-quarter results last week, Burry took aim at the chip maker once again on his X account. This time he accused Nvidia of eroding shareholder value through excessive stock-based compensation dilution, stock buybacks, circular cash flows, and questionable depreciation practices.
Nvidia clarified that Burry miscalculated stock buybacks by incorrectly including RSU (restricted stock unit) tax-related figures. “Nvidia repurchased $91 billion shares since 2018, not $112.5 billion,” the memo stated. The company also explained that employee equity grants should not be mixed with its share repurchase program. Employee stock grants given at the time were not excessive simply because rising stock prices benefited those employees later on.
Nvidia Confirms Proper Depreciation Rules
Addressing Burry’s concerns about GPU depreciation, Nvidia explained that customers depreciate GPUs over 4 to 6 years, reflecting the actual lifespan and usage of the hardware. Conversely, Burry argues that the useful life of Nvidia’s chips is shorter than six years, and companies using longer depreciation periods are spreading out the cost too much and inflating their profits.
Nvidia countered by noting that older GPUs, like the A100 released in 2020, still perform well and generate good profits beyond the 2 to 3 years some critics suggest. Thus, the longer depreciation schedule accurately reflects the real economic value rather than inflating profits.
Nvidia Rejects Circular Deal Accusations
Burry also criticized Nvidia’s multibillion-dollar deals with AI firms like OpenAI (PC:OPAIQ), Microsoft (MSFT), and Oracle (ORCL), claiming end-user demand is minimal since many customers are funded by the same companies they buy from.
In response, Nvidia pointed out that strategic investments make up only a small part of its total revenue and an even smaller portion of the roughly $1 trillion raised annually worldwide in private capital markets. Most companies in Nvidia’s portfolio earn revenue from customers other than Nvidia itself, indicating limited dependency on Nvidia’s own sales.
Is NVDA Stock a Buy?
Despite Burry’s criticism, analysts remain optimistic about Nvidia’s long-term outlook. On TipRanks, NVDA stock has a Strong Buy consensus rating based on 39 Buys, one Hold, and one Sell rating. The average Nvidia price target of $257.26 implies nearly 41% upside potential from current levels. Year-to-date, NVDA stock has surged 36%.
