Nvidia Bulls Vs Bears

How is it possible for Nvidia to report outstanding earnings… and still see its stock tumble?

Nvidia delivered impressive numbers. The data center segment, the core of the AI revolution, generated $62.3 billion in revenue, above expectations. Guidance for the next quarter came in at $78 billion, surpassing even the more optimistic forecasts.

And yet, the following day, the stock dropped more than 5%.

So what exactly happened?

RAISING THE BAR

The first thing to understand is that when a company has skyrocketed over the past few years, it is no longer enough to be “very good.” It has to be shockingly good. The bar is set so high that even an exceptional quarter can be perceived as… not exceptional enough.

The market was not just looking for strong numbers. It was looking for certainty about the future. And that is where the issue began.

In its report, Nvidia mentioned that it is in the process of finalizing an investment and partnership with OpenAI. At the same time, however, it clarified that there is no guarantee the agreement will be completed. In simple terms, the market was expecting reassurance and did not get it.

That matters because if players like OpenAI or other hyperscalers slow down their AI spending, the impact would show up in revenue one or two quarters later. The lack of specific forward visibility created unease.

At the same time, there is a deeper concern. Is the AI boom entering a new phase? So far, demand has been heavily driven by training workloads. Now the industry is shifting more toward inference. Some analysts worry that this transition could reduce Nvidia’s competitive edge and open the door to more rivals.

Add to that the enormous capital expenditures hyperscalers are pouring into AI infrastructure, and a new question starts to circulate: can this pace continue indefinitely?

BURRY RAISES THE ALARM

And as if that were not enough, one of Wall Street’s most well known skeptics entered the conversation.

Michael Burry.

The investor who rose to fame through The Big Short raised a red flag. What concerns him? Nvidia’s purchase obligations, which surged to $95.2 billion from $16.1 billion a year earlier. Including inventory and supply agreements, total commitments stand at roughly $117 billion.

That is almost equal to the company’s annual operating cash flow.

In simple terms, Nvidia is committing massive sums to its supply chain before having absolute certainty about how strong future demand will be. More cash tied up in inventory, for longer periods of time.

This is where Michael Burry drew his big comparison. He pointed to Cisco at the peak of the dot com bubble in 2000 and 2001. Back then, Cisco had locked in huge volumes of supply, expecting 50% annual growth. When demand collapsed, it was left with excessive inventory, forced to take billions in write downs, and eventually its stock crashed.

Burry argues that what we are seeing today is not business as usual. It is risk. He acknowledges that Nvidia’s profit margins, above 70%, are higher than Cisco’s were at the time. But he believes those margins have been boosted by unusually strong demand and significant pricing power. If demand shifts, margins could compress quickly.

BULLS VS BEARS

On the other side, most analysts remain optimistic. Out of 66 analysts covering the stock, 61 rate it as buy or strong buy. The average price target implies meaningful upside. At the same time, management has guided for $78 billion in revenue and continues to project confidence that it will lead the next phase of AI expansion.

So where does that leave us?

A market worried that expectations are simply too high. A Wall Street that remains broadly bullish. And Burry warning that he sees echoes of the dot com era.

The truth is that Burry has been right before. But he has also made many predictions that never materialized, largely because his scenarios tend to be extreme.