The Zhitong Finance App learned that Nvidia (NVDA.US)'s recent stock price correction has attracted Michael Berry's attention, even though he is still cautious about investing in Nvidia in the long term. The investor, famous for accurately predicting the 2008 subprime mortgage crisis, believes that Nvidia may have trading opportunities in the short term, adding that the US chip giant is “an excellent deal,” but he also expects that Nvidia's competitive advantage will gradually weaken in the next five years.
Concerns surrounding Hwang In-hoon's personal turmoil have caused Nvidia to have a cumulative decline of more than 9% since this week, but it rose more than 5% before the market on Wednesday, recovering part of the decline. Prior to that, questions about the AI industry's huge return on investment and concerns that AI data center construction might slow down after the US midterm elections had continued to weigh on Nvidia's stock price.
Burry said, “Judging from the current price, I'm not planning to use it as a long-term position. But I think the entire market will soon feel like this is a great deal.” He doesn't expect the controversy surrounding CEO Hwang In-hoon to cause much damage to Nvidia's business. His bigger concern is how long the chipmaker will be able to maintain its competitive advantage.
Bury previously warned that increasing supervision and market scrutiny surrounding Nvidia's business transactions throughout the AI industry chain could accelerate the narrowing of its competitive advantage. In other words, according to Bury, the core issue facing Nvidia is not a short-term management dispute, but rather whether its technological leadership, market pricing ability, and competitive barriers can be maintained over the long term.
The reason why Bury has attracted attention on Wall Street is due in large part to his experience of successfully shorting the US real estate market before the 2008 global financial crisis. Today, Bury is applying a similar risk identification framework to the AI industry. He believes that AI technology itself may be profoundly transformative, but the broad prospects of the technology do not mean that all participants can obtain a corresponding return on investment. Especially when the scale of capital investment far exceeds the revenue that can be generated by actual commercial applications, the industrial chain may experience problems such as excessive investment, overcapacity, and asset depreciation.
In January of this year, Barry made it clear that in his opinion, Nvidia is one of the most direct targets when betting on a possible reversal of the AI boom, because the company's business is highly dependent on the capital expenses of large cloud computing service providers. He thought at the time that Nvidia might have sold about 400 billion US dollars of chips that year, but the scale of commercial demand that the AI application layer can support is far below this figure. He also pointed out that Nvidia launches new chip solutions almost every year, and that faster technology iterations may make older chips obsolete faster.
Another concern Burry has about the AI industry is the economic return on data center investments. He once questioned large technology companies' estimates of the useful life of AI chips, believing that some companies may reduce current depreciation expenses by extending the depreciation period of chips, thereby increasing short-term profits. If the actual economic life of a chip is shorter than the accounting depreciation period, asset impairment or profit may decline in the future.
He also compared current AI infrastructure construction with historical power infrastructure investment and internet communication bubbles: large-scale upfront capital investment, rapid iteration of technology, accelerated equipment depreciation, and fierce price competition among suppliers may all cause the industry to face overcapacity and declining profitability after experiencing rapid expansion. Burry is particularly concerned that power supply and data center construction progress may not be in sync with the GPU deployment speed, which may cause some expensive devices to face the risk of being idle or declining in economic value before they are put into use.
Furthermore, according to Bury's latest portfolio review, Latin American e-commerce giant MercadoLibre (MELI.US) and Australian furniture retailer Temple & Webster are the two largest holdings in its portfolio. Both stocks each account for more than 10% of their portfolios, Burry revealed. Additionally, he has increased his holdings of Adobe (ADBEUS), JDUS (JDUS), and long-expired Sprouts Farmers Market (SFM.US) bullish options.
Barry said that he recently increased his holdings twice when MercadoLibre's stock price fell below 1,500 US dollars, and believes that the company's stock price is attractive for long-term investment when it is in the 1,400 US dollar range. He also said that if the stock price falls further 20% from the current level, he expects to buy again. Despite MercadoLibre's logistics, fulfillment and marketing expenses putting pressure on profit margins, Bury is optimistic about the company's long-term development prospects. As for Temple & Webster, Burry believes that the stock has formed a phased bottom and is showing signs of trend reversal.