Michael Burry warns that financing risks, not leadership changes, threaten Nvidia

Investor Michael Burry, founder of Scion Asset Management, said the primary risk for Nvidia lies in how the AI boom is being financed, rather than the recent leadership changes. In a Substack post cited by Business Insider, Burry expressed surprise at the market's reaction to Nvidia and warned that the company's competitive advantage could erode faster than expected over the next five years. He described Nvidia's investments in other AI firms and the associated contractual demands as "mafia-like behavior."

Burry estimates that big-tech firms have more than $3 trillion in future AI spending commitments and argues that aging GPUs may lose value before customers can recoup their costs, especially as hyperscalers spread purchase expenses over many years through depreciation. He suggests that current profit reports may be overstated if chip lifespans are shorter than projected.

Nvidia reported strong Q2 fiscal 2027 results, with revenue of $96.221 billion, up 105.85% year over year, and non-GAAP earnings per share of $2.22, beating consensus estimates. The filing also disclosed sizable obligations to customers, including $279 billion in supply commitments, $108.5 billion in revenue guarantees, and nearly $50 billion invested in frontier AI labs. Days sales outstanding rose to 60 days from 45 days.

Chief Financial Officer Colette Kress, now interim CEO after Jensen Huang's resignation, addressed criticism of the financing arrangements, stating that the company sees the structure differently from critics who label it "circular financing." Nvidia also disclosed a $2 billion investment in CoreWeave, an AI cloud provider that purchases its chips.

Management maintains that Nvidia's hardware is "fungible and durable" and can be redeployed to other customers, with some data centers achieving a payback period of less than a year. The company expects capital spending by the top five hyperscalers to reach nearly $800 billion in 2026 and $1.3 trillion in 2027. Nvidia's guidance for the upcoming earnings report includes revenue of $108 billion (±2%) and a gross margin of 74%.

Analysts will watch whether supply obligations and guarantees continue to grow, how quickly receivables are collected, and whether gross margin meets the projected range of 71%–72% for the fourth quarter. Burry also highlighted the risk of a U.S. government crackdown on Nvidia's chip sales to China, adding that the market could soon view the situation as a significant trading opportunity.