Michael Burry on Thursday issued a warning regarding Nvidia Corp.’s (NASDAQ:NVDA) massive surge in purchase obligations, claiming the chipmaker is mirroring the structural risks that led to Cisco Systems Inc.‘s (NASDAQ:CSCO) collapse during the dot-com bubble.
In a recent Substack newsletter, Burry highlighted a staggering shift in Nvidia’s latest Form 10-K filing. The company’s purchase obligations have skyrocketed to $95.2 billion, a massive leap from just $16.1 billion a year ago.
When combined with other supply agreements, Nvidia’s total commitments now stand at approximately $117 billion.
Burry argues that this isn’t a reaction to external shocks but a fundamental, risky change in how the company operates. “This is not business as usual. This is risk,” Burry cautioned.
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He noted that Nvidia is being forced to lock in long-term capacity with suppliers like TSMC before future demand is fully known. “This new reality reflects a deliberate decision to lock up supply chain capacity further than Nvidia has ever done before,” he wrote.
The crux of Burry’s thesis lies in the haunting similarity to Cisco Systems in 2000. At the height of the internet boom, Cisco aggressively committed to supply contracts to support its projected 50% annual growth.
When tech spending plummeted, Cisco was left with billions in unusable inventory and saw its stock price crater by over 80%.
While Nvidia’s current 70% profit margins offer a cushion Cisco didn’t have, Burry remains skeptical of their longevity. “That type of margin would likely revert quickly with a shift in demand,” he warned, suggesting the current “AI darling” status provides no immunity to a cyclical downturn.
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Not all of Wall Street shares Burry’s pessimism. Analysts at Rosenblatt Securities recently raised their price target for Nvidia to $300, viewing the aggressive inventory securing as a sign of management’s confidence in the next generation of AI platforms.
However, Burry insists the shift is structural and permanent: “What is happening now is not temporary… This is coming from within the business plan.”
