Quick Read
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Nvidia (NVDA) stock fell 15% from its peak despite record quarterly results and positive CEO commentary.
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Google’s TPU chips gained momentum after Apple chose them over Nvidia GPUs for training.
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Michael Burry placed a bearish position on Nvidia citing concerns about GPU depreciation schedules and AI spending circularity.
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Nvidia (NASDAQ:NVDA) stock has been through plenty of rough patches before, but something certainly feels more ominous this time around, with shares failing to sustain a rally after a record quarter and an upbeat tone from its CEO, Jensen Huang. Based on the quarter and commentary from management alone, you’d think shares of Nvidia would be breaking out to new highs by now, but that simply hasn’t been the case.
With Dr. Michael Burry, a real doctor who bet against the housing market ahead of the 2008 stock market meltdown, placing a bearish position on the chipmaker and his new newsletter “Cassandra Unchained” likely to keep the bearish points coming over time, you’re certainly not alone if you’re thinking about hitting that sell button, even as the broad market recovers, with the S&P 500 now pretty much back to where it was before the AI “November nosedive” began.
Nvidia defends itself from Michael Burry. It hasn’t been enough to turn the tide on the stock
Though Nvidia and its top boss have been quick to come to the defense of the firm (with a seven-page memo), responding to Burry’s criticisms about the company, it still seems like investors aren’t convinced enough to start buying that big dip in Nvidia shares. Though there isn’t any sort of smoking gun, I do think the man brings up a lot of food for thought, especially for Nvidia shareholders who are contemplating taking some profits off here so that they can play with the house’s money, so to speak.
Whether we’re talking about the circularity of dealmaking within the AI space, the extended valuation of Nvidia stock, questions pointing to the GPU depreciation schedule (2-3 years vs. 4-6 years of useful life) of the heavy spenders in big tech, or comparisons between Nvidia and a younger version of Cisco (NASDAQ:CSCO), which completely imploded in the dot-com bubble bust, the bearish points seem to keep on coming from Burry.
While I haven’t yet heard anything that would warrant panic on the part of Nvidia shareholders, I do think that the tides could continue turning against Nvidia shares, whether that’s due to fears over what “Cassandra Unleashed” could unveil next, or more recent concerns about Google (whose parent company is Alphabet (NASDAQ:GOOG)) is ready to disrupt the AI chip market with its impressive TPUs (Tensor Processing Units).
Personally, I think the threat of Google TPUs, as opposed to accounting question marks surrounding the broader industry, would have me most concerned if I were still holding Nvidia shares on the way down.
Nvidia’s GPUs are a “generation ahead” of the competition. But don’t write off Google TPUs just yet
Of course, Jensen Huang was quite quick to announce that Nvidia is a “generation ahead” of Google. And while he may be right, there’s really no telling what could happen in the next couple of years, as Google aims to close to generational gap.
You can bet that Google CEO Sundar Pichai might have such a goal in mind. Add the power-efficiency gains into the equation, and the potential for Google’s TPU solution to play better with its own models (Gemini) as well as with some of the titans it chooses to partner with, like Meta Platforms (NASDAQ:META), another big force in the race to superintelligence.
Personally, I think all it takes is a few big votes of confidence from its fellow hyperscalers for Google to bring on some of that Nvidia AI chip hype its way. With Apple (NASDAQ:AAPL) going for Google TPUs for training instead of GPUs, I think prospective Nvidia buyers should ponder their contrarian theses carefully.
If Google TPUs really are where the puck is headed next in the world of AI chips, perhaps skating to where the puck is currently at with Nvidia might be less rewarding over time, especially given the relatively extended multiple. In light of the Google-Meta chatter on TPUs, let’s just say I’m far less bullish about Nvidia than I was once. And until Burry covers his put positions on Nvidia and moves on, I’m content watching the action unfold from the sidelines.
The bottom line
With Nvidia stock down close to 15% from its peak, while the S&P is flirting with new highs again, there might be an opportunity to be had with the GPU king. That said, if an outstanding quarter can’t move shares higher, what can? I think that’s the big question dip-buyers will need to ask as they go against Burry and the bears going into year’s end.
At 23.5 times forward price-to-earnings (P/E), Nvidia stock doesn’t seem all that expensive on the surface. However, if Nvidia GPUs have finally met their match with Google TPUs, perhaps it makes more sense to go with the latter name, which stands out as an industry disruptor, but, of course, that’s just my personal opinion.
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