Nvidia has issued a detailed response to criticisms from Michael Burry, the investor widely recognized for his “Big Short” bet against the housing market in 2008. The semiconductor company shared a memo with Wall Street analysts earlier this week, hoping to clear up what it sees as several misconceptions. Burry, through his new Substack newsletter “Cassandra Unchained” and a series of posts on X, argued that Nvidia’s stock buyback strategy has not kept pace with dilution from employee stock compensation. He also questioned how reliable the company’s revenue reporting is and whether demand for artificial intelligence chips can really hold up long term. It’s the kind of debate that tends to stir market watchers, perhaps because both sides feel quite certain about their reasoning.
Key Takeaways
- Shareholder Value Dispute: Michael Burry claims Nvidia spent $113 billion on buybacks since 2018 while its share count still rose by 47 million, effectively diluting shareholder value.
- Nvidia’s Defense: The company states its employee stock plans are standard for retention and that buybacks have properly managed dilution relative to the company’s growth.
- Circular Financing Denial: Nvidia refuted claims that its revenue relies on “circular financing,” stating that sales to companies it invests in make up less than 7 percent of total revenue.
- Utilization Rates: Contrary to Burry’s claim that AI chips have a short useful life, Nvidia reports that older chips like the A100 remain fully utilized in data centers.
The dispute over stock buybacks and dilution sits at the center of the conversation. Burry’s argument focuses on how Nvidia manages its equity and why he believes shareholders are not getting the full benefit of the company’s growth. He pointed out that Nvidia spent about $113 billion repurchasing its own stock over the last seven years, yet the total number of shares outstanding still increased by 47 million. Buybacks usually help bring share counts down, which in turn lifts earnings per share. In Burry’s view, Nvidia’s extensive use of stock-based compensation essentially canceled out these repurchases. He went so far as to estimate that the resulting dilution reduced “owner’s earnings” by roughly 50 percent. It’s a striking claim, even if one might wonder whether the calculation depends on assumptions that could be debated.
Nvidia defended its compensation strategy in the memo. The company said its stock-based compensation plays a crucial role in attracting and keeping employees, especially in an industry where competition for talent can be intense. It noted that employees paid an average of $51 per share for their stock options since 2018, which means they benefited from the stock’s rise but also had real purchase costs. Nvidia maintains that its overall capital allocation aims to balance returning cash to shareholders with motivating its workforce. It’s a balance most large tech firms try to strike, although how well they do it often becomes a matter of interpretation.
Burry also raised concerns about what he called “circular financing.” He suggested Nvidia’s impressive revenue growth might be helped along artificially because the company invests in startups that later use that funding to buy Nvidia chips. He described the effect as customers being “funded by their dealers,” which is a sharp way of putting it and perhaps deliberately so.
Nvidia shared specific figures to push back on that idea. It stated that revenue from companies in which it has investments made up between 3 and 7 percent of its total sales. The company emphasized that these investments are strategic, meant to support the broader AI ecosystem, and that they do not meaningfully distort Nvidia’s revenue picture. Whether one sees that range as negligible or concerning probably depends on personal expectations of how intertwined tech companies should be with their partners.
Another point of debate centers on the lifespan of Nvidia’s hardware. Burry argued that the useful life of a GPU is roughly two to three years, which would imply companies are depreciating these assets too slowly. If that were correct, it would mean corporate profits appear healthier than they actually are. It’s a technical argument, but one that can influence how investors think about long term demand.
Nvidia countered with utilization data. The company pointed out that its A100 chips, launched about six years ago, are still running at full capacity in data centers. That detail matters because it suggests these chips continue providing value well beyond the short timeframe Burry proposed. It also hints at a broader point Nvidia seems eager to make about AI hardware having a longer practical life than skeptics assume. Whether that remains true as next generation chips grow more powerful is something people will likely keep watching.
Altogether, the exchange between Burry and Nvidia has sparked a fresh round of debate about how AI chip demand, corporate incentives, and financial reporting intersect. And while neither side appears likely to persuade the other completely, the conversation itself reflects how much the industry has become a focal point for both optimism and doubt.
Frequently Asked Questions
Q. What specific criticism did Michael Burry make about Nvidia?
A. Michael Burry criticized Nvidia for increasing its share count despite spending billions on buybacks, questioned the useful life of its chips, and alleged that its revenue is supported by circular financing deals with partners.
Q. How did Nvidia respond to the circular financing claims?
A. Nvidia stated that sales to companies it invests in represent a small fraction (3% to 7%) of its total revenue, dismissing the idea that these deals artificially inflate its sales figures.
Q. Did Michael Burry short Nvidia stock?
A. Yes. Filings from the third quarter of 2025 reveal that Michael Burry’s firm, Scion Asset Management, held put options on Nvidia, which is a financial bet that the stock price will decline.
Q. What is the issue with Nvidia’s stock-based compensation?
A. Critics like Burry argue that issuing large amounts of stock to employees dilutes the value of existing shares. He claims this dilution cancels out the positive effects of the company’s stock buyback program.
Q. Is Nvidia under investigation by the SEC?
A. Nvidia stated in its memo that it has no connection to past accounting fraud cases and has not received any investigation notices from the Securities and Exchange Commission regarding these matters.
