Key Takeaways
- Nvidia shares tumbled close to 5% following its blockbuster Q4 financial results
- The Big Short investor Michael Burry drew parallels between Nvidia and Cisco’s dot-com era collapse
- Purchase obligations at Nvidia have skyrocketed to $95.2 billion from $16.1 billion twelve months ago
- Combined supply commitments have reached $117 billion, approaching Nvidia’s full-year operating cash flow
- Analysts maintain overwhelmingly bullish sentiment, with a Strong Buy rating and $273.38 average target price
Shares of Nvidia (NVDA) slid almost 5% Thursday, a surprising market reaction following what many considered exceptional quarterly performance. When stocks decline after delivering impressive earnings, it naturally raises eyebrows.
The Thursday downturn gained momentum partly due to a pointed critique from Michael Burry, the legendary investor who correctly predicted the 2008 subprime mortgage crisis. Writing on Substack, Burry characterized Nvidia’s supply chain strategy as “troubling” and cautioned that weakening AI demand could prove “catastrophic” for both profitability and financial stability.
The figure driving Burry’s alarm deserves attention. Purchase obligations at Nvidia — binding supply agreements that cannot be terminated — have surged to $95.2 billion. Just twelve months prior, that number stood at merely $16.1 billion.
Put simply: Nvidia has contractually obligated itself to purchase approximately $100 billion in semiconductor materials without certainty that customer demand will materialize.
Burry calculates Nvidia’s complete supply obligations at $117 billion. This amount approaches the company’s total annual operating cash flow.
“Not business as usual,” Burry observed.
Historical Echoes of the Dot-Com Era
Burry’s historical analogy is pointed. He draws comparisons between Nvidia’s present circumstances and Cisco’s predicament during the 2000-2001 dot-com implosion.
Cisco committed to enormous supply contracts anticipating perpetual 50% yearly growth. When market demand evaporated, Cisco drowned in unsold inventory. The company’s stock price ultimately plummeted more than 80%.
Burry contends Nvidia may be retracing a comparable trajectory. He further suggested these extended, non-cancellable contracts aren’t entirely voluntary. His theory points to TSMC demanding longer commitments and advance payments as it builds out manufacturing capacity.
CFO Colette Kress acknowledged that inventory levels climbed 8% from the previous quarter and confirmed Nvidia has secured supply capacity extending far beyond typical planning horizons. To Burry, these are additional warning signals.
The Analyst Community Remains Optimistic
The majority of Wall Street analysts reject this pessimistic outlook. Leading voices from Bank of America, Morgan Stanley, and RBC all increased their NVDA price projections following Q4 results while maintaining Buy recommendations.
The prevailing Street opinion interprets Nvidia’s supply commitments as demonstrating strategic foresight, not vulnerability. The consensus view holds that the company is positioning itself ahead of explosive AI infrastructure growth.
This represents the fundamental disagreement in the current debate. Burry contends the market is mistaking a supply expansion for sustainable long-term consumption — an identical error made during the internet bubble. Analysts maintain the underlying demand is both genuine and enduring.
The bullish case does have compelling numerical support. Nvidia delivered record-breaking quarterly performance, and Wall Street maintains a Strong Buy consensus built on 37 Buy recommendations, one Hold rating, and a single Sell over the last three months.
The consensus price target reaches $273.38, suggesting approximately 48% potential appreciation from present trading levels.
Whether that growth potential becomes reality may hinge on a single critical question: does AI infrastructure demand possess the durability to match the supply commitments Nvidia has now locked in?
Nvidia’s aggregate purchase obligations currently total $95.2 billion, representing a nearly six-fold increase from $16.1 billion merely one year earlier.
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