Nvidia name-checks Michael Burry in secret memo pushing back on AI bubble

Key Concepts

• Depreciation: The accounting method of spreading the cost of an asset over its useful life.
• AI Chips: Specialized microprocessors designed for artificial intelligence workloads.
• Hyperscalers: Large cloud computing providers (e.g., Amazon, Microsoft, Google).
• Free Cash Flow (FCF): The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.
• Special Purpose Entities (SPEs): Off-balance-sheet entities used to conceal debt or liabilities.
• Vendor Financing: A situation where a vendor provides financing to a buyer.

Allegations of Accounting Fraud Against Nvidia

Investor Michael Bur has accused big technology companies, specifically Nvidia, of "cooking the books" by artificially extending the depreciation period of AI chips. Bur claims that Nvidia depreciates its AI chips over 5 to 6 years, when their actual burnout period is only 2 to 3 years.

• Financial Impact of Depreciation: By extending the depreciation period, companies spread the cost of the asset over a longer time, resulting in lower annual expenses. This, in turn, makes profits appear larger.
• Bur's Calculation: Bur estimates that this practice understates costs by approximately $176 billion through 2028.

Nvidia's Response and Defense

Nvidia has publicly refuted Bur's claims, sending a private memo to Wall Street analysts.

• Refutation of Fraud Comparison: Nvidia explicitly states that its accounting practices are not comparable to the accounting frauds of companies like Enron (which used Special Purpose Entities to hide debt) or Lucent (which relied on vendor financing).
• Customer Base: The company asserts that over 90% of its sales originate from profitable hyperscalers, government entities, and enterprise customers, citing Bank of America for this data.
• Financial Performance: Nvidia highlighted its strong free cash flow, which reached $22 billion last quarter, representing a 60% increase from the prior quarter.

Michael Bur's Stance and Future Actions

Despite Nvidia's rebuttal, Michael Bur remains firm in his analysis.

• Commitment to Analysis: Bur stated on X (formerly Twitter), "I stand by my analysis and will release on my t on my timeline," indicating his intention to release further data to support his claims.
• Promotional Activity: While awaiting further data releases, Bur is promoting a newsletter priced at approximately $379 per year.

External Review of Nvidia's Financials

Wolf Research has reviewed Nvidia's memo and found its inventory and receivables to be reasonable, considering the company's rapid growth.

Unresolved Question

The central question remains whether Michael Bur can substantiate his fraud allegations against Nvidia with concrete data, which has not yet been publicly presented.