Renowned investor Michael Burry, best known for predicting the 2008 financial crisis and inspiring the film The Big Short, has sharply criticized Nvidia’s Q3 earnings report, raising alarms about what he describes as “major accounting concerns.” Despite Nvidia posting record-breaking revenue and profits, Burry has warned that the company’s reliance on stock-based compensation (SBC) and aggressive buybacks could be masking the true financial picture.
Nvidia’s Q3 Results: Record Numbers, Rising Questions
Nvidia reported all-time-high revenue and profits in its latest quarterly results, driven by booming demand for AI chips. The company projected continued strong growth, with investors celebrating a surge in share prices. However, Burry’s critique suggests that beneath the headline numbers lies a troubling story:
- Nvidia reported $20.5 billion in stock-based compensation since 2018.
- Despite massive buybacks worth $112.5 billion, the company’s outstanding shares have increased by 47 million.
- Burry argues that when dilution is fully considered, Nvidia’s earnings could be halved.
Pivot Table: Nvidia’s Reported vs Adjusted Metrics (2018–2025)
| Metric | Reported by Nvidia | Adjusted (Burry’s View) | Concern |
|---|---|---|---|
| Net Income | $205B | ~50% lower | Dilution impact |
| Free Cash Flow | $188B | Significantly reduced | SBC costs understated |
| Stock Buybacks | $112.5B | Neutralized by dilution | Ineffective capital return |
| Shares Outstanding | +47M | Rising despite buybacks | Shareholder value erosion |
Burry’s Concerns: The AI Bubble Narrative
Burry has repeatedly warned that the AI boom may be an unsustainable bubble, similar to the dot-com era. His latest critique of Nvidia ties into broader concerns:
- Overvaluation: AI stocks are trading at extreme multiples, detached from fundamentals.
- Interconnected Risks: Heavy reliance on speculative capital and cross-industry hype.
- Accounting Gaps: Understated costs of SBC distort profitability.
Table: Key Accounting Issues Highlighted by Burry
| Issue | Nvidia’s Practice | Burry’s Critique | Potential Impact |
|---|---|---|---|
| Stock-Based Compensation | Reported minimally | True costs hidden | Earnings overstated |
| Share Buybacks | Aggressive repurchases | Dilution offsets gains | Shareholder value questioned |
| Revenue Growth | Driven by AI demand | Bubble risk | Sustainability doubtful |
| Profit Margins | Record highs | Artificially inflated | Vulnerable to correction |
Market Reaction
While investors initially cheered Nvidia’s Q3 results, Burry’s comments have sparked debate:
- Bullish Analysts: Argue Nvidia’s growth is real, driven by AI adoption.
- Skeptics: Echo Burry’s concerns, warning of inflated valuations.
- Retail Investors: Divided between chasing momentum and fearing a bubble burst.
Broader Implications for AI Industry
Burry’s critique extends beyond Nvidia:
- AI Startups: Many rely on similar accounting practices, raising systemic risks.
- Tech Giants: Heavy investment in AI could backfire if bubble bursts.
- Global Markets: AI hype is fueling stock rallies worldwide, increasing volatility.
Conclusion
Michael Burry’s sharp criticism of Nvidia’s Q3 results highlights the tension between record-breaking growth and underlying financial concerns. His warnings about stock-based compensation, dilution, and bubble risks serve as a reminder that even the most celebrated companies may face hidden vulnerabilities.
As Nvidia continues to ride the AI wave, investors must weigh the excitement of innovation against the cautionary signals of one of the world’s most famous contrarian voices.
Disclaimer: This article is based on publicly available financial reports and expert commentary. Readers are advised to consult official filings and professional financial advisors before making investment decisions.
