Nvidia product procurement commitments have increased sixfold to $95 billion, which could cause difficulties if demand suddenly drops.

Possible Financial Hit on NVIDIA: Michael Burry’s Conclusions

Renowned investor Michael Burry (Michael Burry) noticed a warning signal in NVIDIA’s annual report filed on Form 10‑K. He emphasizes that the company’s massive procurement obligations could become a source of serious financial problems if demand for its products were to plummet sharply.

What exactly raises concerns?
- Obligations have nearly sextupled – from $16 billion to $95 billion.
- This increase is due to NVIDIA strengthening long‑term contracts with suppliers to secure stable supplies for the high demands of the AI market.
- Specifically, TSMC (the chip manufacturer) is forced to build new fabs, and part of the financing may come from NVIDIA itself in the form of purchase commitments.

Why it’s a risk
1. Fixed payments – even if NVIDIA does not need all the ordered material, it still must pay suppliers.
2. Freezing working capital – a large portion of cash resources is tied up paying obligations and is returned with delay, worsening liquidity.
3. Comparison to the past – by the end of the previous fiscal year NVIDIA had purchase commitments of $117 billion, almost equal to its operating cash flow for January. This “unusual” ratio, according to Burry, increases risk.

Historical Example
Burry cited Cisco: during the dot‑com bubble the company aimed for 50 % revenue growth and increased purchase commitments. After the crash it had to write off about 40 % of those commitments, leading to a drop in stock price.

Impact on Profitability
- NVIDIA relies on high chip prices that allow profitability when demand is strong.
- If the market weakens and prices fall, the company’s margin could shrink and its financial position would deteriorate.

Burry’s Plan
Michael Burry has already stated his intention to bet against NVIDIA shares. He believes the company is too vulnerable to a potential “AI bubble burst” and is ready to use this in his investment strategies.