NVIDIA Corporation (NVDA.US) rebounds in pre-market trading! "Big Short" Burry sees a short-term trading opportunity but warns that it may be hard to escape a long-term decline in competitive advantage.

NVIDIA Corporation (NVDA.US)'s recent stock pullback has drawn the attention of Michael Burry, even though he remains cautious about investing in NVIDIA Corporation for the long term. The investor, known for accurately predicting the 2008 subprime mortgage crisis, believes there may be a short-term trading opportunity in NVIDIA Corporation and called the U.S. chip giant "a great trade," but he also expects NVIDIA Corporation's competitive advantage to gradually weaken over the next five years. Concerns over the personal controversy surrounding Jensen Huang have sent NVIDIA Corporation down more than 9% so far this week, but the stock rose more than 5% in pre-market trading on Wednesday, recovering part of the decline. Before that, doubts about the return on massive AI industry investments and worries that AI data center construction could slow after the U.S. midterm elections had already kept NVIDIA Corporation's share price under pressure. Burry said: "At the current price, I do not intend to hold it as a long-term position. But I think the broader market will soon view this as a great trade." He expects the controversy surrounding CEO Jensen Huang will not cause much damage to NVIDIA Corporation's business. His bigger concern is how long the chipmaker can maintain its competitive advantage. Burry previously warned that increasing regulatory and market scrutiny of NVIDIA Corporation's business dealings across the AI supply chain could accelerate the narrowing of its competitive advantage. In other words, in Burry's view, the core issue facing NVIDIA Corporation is not a short-term management controversy, but whether its technological leadership, market pricing power and competitive barriers can be sustained over the long term. Burry attracts significant attention on Wall Street largely because of his successful short bet against the U.S. housing market before the 2008 global financial crisis. Now, Burry is applying a similar risk-identification framework to the AI industry. He believes AI technology itself may be profoundly transformative, but a broad technological outlook does not mean all participants will earn corresponding investment returns, especially when the scale of capital investment far exceeds the revenue that actual commercial applications can generate, which could lead to problems such as overinvestment, overcapacity and asset impairments across the supply chain. In January this year, Burry explicitly said that in his view, NVIDIA Corporation was one of the most direct targets for betting on a possible reversal of the AI boom, because the company's business is highly dependent on capital spending by large cloud service providers. At the time, he believed NVIDIA Corporation might sell about US$400 billion of chips that year, but the scale of commercial demand that the AI application layer could support was far below that figure. He also noted that NVIDIA Corporation launches new chip solutions almost every year, and faster technology iteration could make older-generation chips obsolete more quickly. Another of Burry's concerns about the AI industry is the economic return on data center investment. He has questioned large technology companies' estimates of the useful life of AI chips, arguing that some companies may reduce current depreciation expenses by extending chip depreciation periods, thereby inflating short-term profits. If the actual economic life of chips is shorter than the accounting depreciation period, asset impairments or profit downgrades could occur in the future. He also compared current AI infrastructure construction with historical power infrastructure investment and the internet communications bubble: large-scale upfront capital investment, rapid technology iteration, accelerated equipment depreciation and fierce price competition among suppliers could all leave the industry facing overcapacity and declining profitability after a period of rapid expansion. Burry is particularly concerned that power supply and data center construction schedules may not keep pace with GPU deployment, potentially leaving some expensive equipment idle or at risk of declining economic value before it is even put into use. In addition, Burry's latest portfolio commentary shows that Latin American e-commerce giant MercadoLibre (MELI.US) and Australian furniture retailer Temple & Webster are the two largest holdings in his portfolio. Burry disclosed that each of these two stocks accounts for more than 10% of his portfolio. He also added to Adobe (ADBEUS), JD.com, Inc. Sponsored ADR Class A (JDUS), and long-dated call options on Sprouts Farmers Market (SFM.US). Burry said he recently added to MercadoLibre twice when the stock was below US$1,500 and believes the stock is attractive for long-term investment in the US$1,400 range. He also said that if the stock falls another 20% from current levels, he expects to buy again. Although MercadoLibre's logistics, fulfillment and marketing expenses are putting pressure on margins, Burry remains optimistic about the company's long-term prospects. As for Temple & Webster, Burry believes the stock has formed a bottom and shows signs of a trend reversal.