TLDR
- Nvidia stock fell nearly 5% despite posting record-breaking fourth quarter results
- The Big Short’s Michael Burry compares Nvidia’s approach to Cisco’s catastrophic dot-com bubble strategy
- Nvidia’s purchase obligations exploded from $16.1 billion to $95.2 billion in just one year
- Total supply commitments now equal $117 billion, nearly matching annual operating cash flow
- Wall Street remains bullish with Strong Buy consensus and $273.38 average price target
Nvidia (NVDA) experienced a sharp 5% decline on Thursday despite reporting exceptional quarterly earnings results. The counterintuitive price movement has triggered significant investor attention and debate.
The selloff gained momentum after Michael Burryâthe famed investor who correctly forecasted the 2008 housing market collapseâpublished a critical analysis on his Substack platform. Burry characterized Nvidia’s supply chain obligations as “concerning” and warned that any deceleration in demand could create “catastrophic” consequences for margins and balance sheet stability.
The data point fueling Burry’s concern is remarkable. Nvidia’s purchase obligationsâlegally binding supply contracts the company must honorâexploded to $95.2 billion. This represents a staggering increase from just $16.1 billion recorded in the prior year.
Put differently: Nvidia has committed to procuring approximately $100 billion worth of semiconductor materials and manufacturing components, regardless of whether end-market demand materializes to support such volume.
Burry’s calculations peg Nvidia’s comprehensive supply commitments at $117 billion total. This figure nearly matches the company’s entire annual operating cash flow generation.
“This isn’t normal operating procedure,” Burry noted.
The Cisco Comparison
Burry employs stark historical parallels in his analysis. He explicitly compares Nvidia’s present situation to Cisco’s fate during the 2000-2001 technology bubble implosion.
Cisco locked in massive supply contracts based on assumptions that 50% annual growth rates would continue indefinitely. When demand evaporated, Cisco was left holding massive excess inventory. The networking giant’s shares eventually crashed by over 80%.
Burry argues Nvidia could be traveling down a similar path. He further suggests these lengthy, non-cancellable supply agreements aren’t purely Nvidia’s choice. According to Burry, TSMC is requiring extended commitments and upfront payments as it expands manufacturing capacity.
CFO Colette Kress revealed that inventory increased 8% quarter-over-quarter and confirmed Nvidia has locked in supply extending well beyond normal planning cycles. For Burry, these disclosures support his thesis.
Wall Street Sees It Differently
Most institutional analysts maintain a contrasting viewpoint. Major investment banks including Bank of America, Morgan Stanley, and RBC raised their NVDA price targets post-earnings while reaffirming Buy ratings.
The dominant Wall Street narrative characterizes Nvidia’s supply commitments as prudent preparation rather than reckless overextension. The mainstream interpretation holds that Nvidia is securing critical resources in advance of massive AI infrastructure expansion.
This captures the central disagreement. Burry believes the market is confusing a temporary supply spike with durable end-demandâthe same error that characterized the dot-com euphoria. Analysts argue AI consumption patterns have fundamental longevity.
The optimistic argument carries numerical weight. Nvidia posted record quarterly numbers, and analysts maintain a Strong Buy consensus based on 37 Buy ratings, one Hold, and one Sell rating published over the past three months.
The mean price target sits at $273.38, implying roughly 48% upside from current price levels.
Whether that upside realizes hinges on a single pivotal question: will AI demand prove as durable as the supply commitments Nvidia has now contractually obligated itself to fulfill?
Nvidia’s total purchase obligations currently stand at $95.2 billion, marking nearly a six-fold jump from the $16.1 billion figure reported twelve months earlier.
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