The Zhitong Finance App learned that the “big short” Michael Berry expects Nvidia (NVDA.US)'s upcoming earnings report to be “excellent,” but he urged the bulls to “leave the market.” The investor, known for accurately predicting the 2008 subprime mortgage crisis, warned that the crisis surrounding CEO Wong In-hoon may threaten financing arrangements and customer transactions that support Nvidia's growth, while leadership uncertainty, increased customer bargaining power, and regulatory risks may slow the company's growth and put pressure on profit margins.
Bury: Nvidia's performance is expected to be “excellent”, but the bulls should leave
Bury expects Nvidia's earnings report to be strong next week. The reason is that any impact related to the Hwang In-hoon crisis will take time to be reflected in the financial report. “The quarterly earnings report to be released in less than a week is ready and will be excellent,” he said. “Everything is in place, all terms and structures have been settled. And unraveling this intricate web will take time.”
However, he believes that this financial report provides another good opportunity for the bulls to sell off. “Nvidia's bulls will have another fantastic exit. Let's get out of the field.” Nvidia will announce financial results for the quarter ending October 25 next week. The company previously predicted revenue of $108 billion, fluctuating 2% up and down, and gross margin of about 74%.
According to Koyfin data, the market expects Nvidia's revenue to increase 13% month-on-month to US$109.01 billion, adjusted earnings per share to increase 11% to US$2.47, and EBITDA to increase 12% to US$73.08 billion. According to Fiscal AI data, revenue is expected to nearly double to US$108.4 billion year over year, earnings per share are expected to rise from US$1.25 to US$2.46 billion, and EBITDA is expected to rise from US$37.35 billion to US$72.9 billion.
There are doubts about whether Hwang In-hoon can successfully transfer classes
Nvidia's board of directors launched an independent investigation this week to find out if foreign intelligence agencies targeted Hwang In-hoon. However, the directors supported him, saying there was no reason to believe that company secrets or US national security were compromised. However, according to reports, as of Wednesday, directors are meeting to consider removing Hwang In-hoon after two extramarital affairs scandals came to light.
Burry blamed Nvidia on Hwang In-hoon for allegedly putting pressure on customers. “The 'Godfather' has fallen. Similarly, a system of protective fees lost enforcers wearing black jackets,” he said. “This kind of coercion appears to be coming from a high level.”
He also questioned whether Chief Financial Officer Colette Kress would be qualified for Wong In-hoon's position. Colette is seen as one of the potential temporary successors. “I don't think Colette or any new CEO would be a perfect replacement for Hwang In-hoon,” he said. Burry believes that replacing Hwang In-hoon would also mean losing his influence on customers. “The 'godfather' was a former enforcer, and Nvidia will lose both at the same time.”
Burry said leadership uncertainty has heightened his concerns about Nvidia's financing and sales methods. “Nvidia's key human risk has always been a concern,” he said. “It would be great if that were all.”
AI capital flow may face a slowdown
Burry warns that Nvidia's investment in companies that buy its chips could make sales vulnerable when capital slows. “Deal terms and financing structures are secret weapons, adding strength to an already dominant technology,” he said.
In the six months ending July 26, Nvidia purchased 42.4 billion US dollars of equity securities. In August, it announced initial partnerships with six financial groups, including Apollo and Blackstone, with the goal of raising more than $500 billion for AI infrastructure over time.
Burry pointed out that the entire system is highly leveraged. “The whole system has huge leverage — I found it as high as 76 times,” he said. He expects Nvidia's board of directors to control risk as it responds to the leadership crisis, which may slow the flow of funds to customers. “The threat facing Nvidia and its AI ecosystem is that cash flow may be disrupted. New investments will be more prudent, and may even not be made at all. There may even be asset write-offs.”
Customer boycotts could squeeze profit margins
Burry claims that Nvidia is threatening to reduce future quotas, forcing customers to buy chips when the data center is not ready, causing unused equipment to be piled up in warehouses without depreciation. “The fall of 'Godfather' gave customers an excuse to slow down transactions, bargain, renegotiate terms, or simply switch to competitors without fear of offending Nvidia executives,” he said.
He added that antitrust scrutiny may make it more difficult to maintain this pressure, exposing the gap between the rapid release of Nvidia GPUs and the time it takes for customers to build data centers. “Nvidia's business is not going away, but its growth may slow, and crucially, its profit margins may decline.”
Burry said that if Nvidia reduces its reliance on these financing and sales arrangements, its technology will provide greater protection. “Without all of this, this company, which has both software and hardware, would be relatively better able to resist the CEO's deviant behavior,” he said. “Unfortunately, that's not the case with Nvidia.”
Nvidia's regulatory risks are rising
Prior to the board crisis, the US Department of Justice was already reviewing Nvidia's investment and sales practices. Burry anticipates that these issues and chip sales to China will face a new round of scrutiny. Earlier this week, he said, “In my opinion, Nvidia's mafia-like act of investing in many participants and making demands in the AI field has long been a reason for antitrust lawsuits.”
He also warned that Hwang In-hoon's trouble might attract more attention. “Disappointed people attract all kinds of speculators.”
Bury also questioned the timing of Nvidia's customer Megaspeed's chip purchase. This company is linked to the target of Hwang In-hoon's scandal. He said, “If there was real evidence, it wouldn't be covered up. Similarly, the absence of evidence will not prevent media reports and all kinds of accusations. I don't think this will pass any time soon.”
He said that the crisis revealed the risk of Nvidia's dependence on Wong In-hoon: “Investors must be aware that absolute power definitely leads to corruption, and when a key person walks on the edge of a cliff like this, there is a risk of personal failure.”