Michael Burry Says Nvidia Has Bigger Problems Than Jensen Huang
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The artificial intelligence boom has created one of the greatest spending sprees in technology history. Hundreds of billions of dollars are pouring into data centers, advanced processors, and the infrastructure needed to power AI. Yet an uncomfortable question is emerging: Will those investments generate enough revenue to justify their cost?
With technology stocks already under pressure, investors are beginning to question whether the industry’s spending ambitions have gotten ahead of its earning power. The answer could determine whether the AI boom has years of growth ahead or whether Wall Street has badly mispriced its most celebrated companies.
For Nvidia (NASDAQ:NVDA | NVDA Price Prediction), the debate has become more urgent following CEO Jensen Huang’s resignation this morning amid revelations about his personal relationships.
But Michael Burry, the investor famous for predicting the housing collapse, sees an even bigger problem developing beneath the headlines — one that could threaten Nvidia’s business long after the leadership controversy fades.
The $176 Billion Problem Hiding in Plain Sight
Burry has spent months warning that the AI boom could be approaching a reckoning. His concern centers on how companies account for the billions they’re spending on AI infrastructure.
When Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and other technology giants buy Nvidia processors, they don’t immediately charge the entire purchase against earnings. Instead, they depreciate the equipment over its estimated useful life. The longer that period, the smaller the annual expense — and the higher reported profits appear.
Burry has argued that companies are using depreciation schedules that don’t adequately reflect how quickly AI chips become outdated. He estimated the resulting understatement of depreciation could reach $176 billion between 2026 and 2028.
A $10 billion investment in processors, spread over six years, would see annual depreciation total approximately $1.67 billion. Shorten the useful life to three years, and that expense doubles to $3.33 billion. Nothing about the underlying business changed. Yet annual accounting profits would fall by another $1.67 billion.
Granted, longer depreciation schedules aren’t automatically improper. Older chips can remain productive even after newer generations arrive. Burry’s concern is that the industry’s technological advances could make those accounting assumptions increasingly optimistic.
Nvidia’s Customers Are Spending Faster Than They’re Earning
The more immediate threat to Nvidia is what happens when customers begin questioning their returns. Amazon’s Oct. 29 earnings release provides a revealing example.
Amazon Web Services revenue increased 39% to $46 billion in the third quarter. Yet Amazon’s companywide free cash flow swung from a $14.8 billion inflow to a $42.4 billion outflow over the trailing 12 months, primarily because of increased AI infrastructure spending.
Microsoft presents a different picture. Its Azure revenue grew 48% in the September quarter, while the company generated $18.6 billion in free cash flow despite $45.2 billion in capital expenditures. Both companies are expanding their AI businesses. But their cash flows tell different stories.
The danger of betting against Nvidia and the AI boom is that strong demand can persist longer than skeptics expect. Nvidia’s fiscal second-quarter revenue surged 106% to $96.2 billion, while data center revenue climbed 117% to $89 billion. Its gross margin reached 75%. Those aren’t numbers suggesting customers have stopped buying.
But if Microsoft’s, Amazon’s, and other hyperscalers’ AI investments eventually fail to deliver adequate returns, today’s spending boom could become tomorrow’s capital expenditure cuts.
Nvidia would feel those reductions directly.
Key Takeaway
Huang’s departure introduces real uncertainty. Nvidia named CFO Colette Kress interim CEO, and investors must now assess whether the company’s leadership transition will disrupt its customer relationships and product roadmap.
The damage already inflicted on Nvidia shareholders demonstrates how quickly confidence can disappear. But Burry’s warning goes beyond one executive.
In short, Nvidia’s greatest long-term vulnerability isn’t necessarily losing Jensen Huang. It’s losing the willingness of its biggest customers to keep spending at today’s extraordinary pace.
Investors shouldn’t confuse a 30%-plus stock decline with proof that Nvidia is suddenly cheap. Before buying the dip, watch whether hyperscaler free cash flow improves, depreciation expenses accelerate, and AI capital spending continues growing. Those numbers will ultimately tell shareholders more about Nvidia’s future than the name on the CEO’s office door.
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
