Nvidia’s (NVDA) Supply Commitments Surge—Michael Burry Calls It ‘Catastrophic’

Nvidia NVDA -5.46% ▼ fell nearly 5% on Thursday, even after delivering record-breaking quarterly results. The drop shows investors aren’t fully convinced amid a fear of a potential tech bubble and higher AI spending. The sell-off accelerated after a sharp warning from “Big Short” investor Michael Burry. In a Substack post, Burry called Nvidia’s supply situation “troubling.” He added that Nvidia’s strong margins are driven by exceptional demand and pricing power, warning that any slowdown could be “catastrophic” for earnings and its balance sheet.

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For context, Michael Burry is a renowned investor and hedge fund manager best known for predicting the 2008 housing market crash, as portrayed in the book and film The Big Short. He is known for his bold, contrarian bets in the financial markets and warned about an AI Bubble.

Burry Sounds Alarm on Nvidia’s Supply Surge

The core of Burry’s concern is simple but striking. Nvidia’s purchase obligations — essentially locked-in supply contracts it cannot cancel — jumped to $95.2 billion, up from just $16.1 billion a year earlier. To simplify, Nvidia is now committed to buying nearly $100 billion worth of chip components before it even knows whether customers will actually need them.

Burry argues this is a dangerous position. He draws a direct comparison to Cisco Systems CSCO -1.29% ▼ during the dot-com bubble of 2000 and 2001. Back then, Cisco locked in massive supply orders expecting 50% annual growth to continue forever. When demand unexpectedly fell, Cisco was buried under excess inventory — and its stock eventually lost more than 80% of its value.

Overall, Nvidia’s total supply obligations now stand at $117 billion, a figure that nearly matches the company’s entire annual operating cash flow. Burry said what’s happening inside the company’s books is “not business as usual.”

Additionally, Burry noted that CFO Colette Kress said inventory rose 8% quarter over quarter and that Nvidia has locked in supply capacity well beyond its usual planning window. For Burry, that’s a red flag. He argues Nvidia isn’t choosing these long-term, non-cancellable orders — it’s being pushed into them by TSMC TSM -2.82% ▼ , which wants longer commitments and upfront payments to expand capacity.

What This Means for NVDA Investors

Here’s the split that makes this story so fascinating for investors. Wall Street analysts are overwhelmingly bullish on Nvidia post Q4 earnings. Top analysts at Bank of America, Morgan Stanley, RBC, and more have raised their price targets on NVDA while maintaining Buy ratings. Most analysts see Nvidia’s supply commitments as a strength, stating it as a sign that the company is securing its dominance ahead of surging AI demand.

Burry sees the exact opposite. He believes the market is confusing a supply boom with durable long-term demand, similar to the mistake made during the dot-com era.

Broadly, Nvidia’s fundamentals are still extraordinary. But the post-earnings stock drop signals that investors are at least beginning to ask harder questions about what happens when the AI spending frenzy eventually cools.

Is NVDA a Good Stock to Buy Now?

Turning to Wall Street, analysts have a Strong Buy consensus rating on Nvidia stock based on 37 Buys, one Hold, and one Sell assigned in the past three months. Furthermore, the average Nvidia price target of $273.38 per share implies 48% upside potential.

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