Michael Burry Warns Nvidia’s $117B Supply Lock-In Echoes Cisco Dot‑Com Overbuild
Michael Burry intensified his bearish view on Nvidia after the company’s latest earnings, citing a sharp rise in purchase obligations as a key risk. In a Substack note he highlighted Nvidia’s purchase commitments jumping to $95.2 billion from $16.1 billion year‑over‑year and said total supply obligations (inventory plus purchase agreements) are about $117 billion — roughly comparable to Nvidia’s annual operating cash flow. CFO Colette Kress told investors inventory rose 8% quarter‑over‑quarter and the company has “strategically secured inventory and capacity” further into the future than usual. Burry likened this supply lock‑in to Cisco’s late‑1990s/2000s strategy of extending supplier commitments ahead of expected growth, which left Cisco with excess inventory and large write‑downs after demand collapsed. He warned that Nvidia’s unusually high gross margins (above 70%) have been supported by strong demand and pricing power and could revert quickly if demand softens. On the same call, CEO Jensen Huang emphasised that Nvidia’s networking business has become a major unit — reporting annual networking revenue north of $31 billion and describing products (NVLink, InfiniBand, Spectrum‑X) that connect chips, racks, clusters and data centers for large‑scale AI workloads. Jensen said networking revenue is up more than 10x since fiscal 2021 and that demand is broadening beyond chatbots. Key stats: purchase obligations $95.2B (from $16.1B), total supply obligations ~$117B, inventory +8% QoQ, networking revenue >$31B. Traders should watch demand signals, bookings vs. deliveries, margin trends and supply‑chain commitments for signs of demand slowdown or inventory risk.
Bearish
The news raises tangible downside risk for Nvidia that can affect market sentiment across tech and crypto sectors. Michael Burry’s highlight of a near‑term jump in purchase obligations ($95.2B) and total supply commitments (~$117B) signals a deliberate locking of inventory and capacity ahead of confirmed demand. Historical parallel: Cisco’s early‑2000s supplier commitments led to large write‑downs and a sharp stock decline when demand collapsed. For traders this creates two immediate implications: 1) short‑term — increased volatility as investors reprice the probability of demand softening, margin compression, or future inventory write‑downs; 2) medium/long‑term — potential earnings downside if AI infrastructure demand slows, which could reduce capital spending across cloud and crypto‑mining/AI service providers. Crypto markets often correlate with equity risk‑off flows; a risk to Nvidia’s growth could pressure crypto risk assets (especially tokens tied to AI or data‑center infrastructure) as liquidity shifts away from growth tech. Key signals to monitor: subsequent guidance revisions, backlog vs. delivery cadence, gross margin trajectory, inventory write‑downs, and customer capex trends (AWS, hyperscalers). Given the size of the commitments relative to cash flow, any signs of demand deceleration would likely be viewed negatively by traders, making the immediate market impact bearish.