"Big Short" Burry: NVIDIA Corporation (NVDA.US) earnings next week will be "very good," but bulls should take the opportunity to exit

"Big Short" Michael Burry expects NVIDIA Corporation (NVDA.US)'s upcoming earnings report to be "very good," but he urged bulls to "exit." The investor, known for accurately predicting the 2008 subprime mortgage crisis, warned that the crisis surrounding CEO Jensen Huang could threaten the financing arrangements and customer deals that support NVIDIA Corporation's growth, while leadership uncertainty, rising customer bargaining power, and regulatory risk could slow the company's growth and pressure its margins. Burry: Expects NVIDIA Corporation's results to be "excellent," but bulls should exit Burry expects NVIDIA Corporation's earnings next week to be strong, reasoning that any shock related to the Jensen Huang crisis will take time to show up in the financials. "The quarterly report due in less than a week is already locked in and will be excellent," he said. "Everything is already in placeall the terms, all the structures have been settled. And unraveling this intricate web will take time." But he believes this report offers bulls yet another selling opportunity. "NVIDIA Corporation bulls will get another excellent exit opportunity. Get out now." NVIDIA Corporation will report quarterly results for the quarter ended October 25 next week. The company previously forecast revenue of $108 billion, plus or minus 2%, and a gross margin of about 74%. According to Koyfin data, the market expects NVIDIA Corporation's revenue to rise 13% quarter over quarter to $109.01 billion, adjusted earnings per share to rise 11% to $2.47, and EBITDA to rise 12% to $73.08 billion. According to Fiscal AI data, revenue is expected to nearly double year over year to $108.4 billion, earnings per share are expected to rise from $1.25 to $2.46, and EBITDA is expected to rise from $37.35 billion to $72.9 billion. Whether Jensen Huang can smoothly hand over power is in doubt NVIDIA Corporation's board this week launched an independent investigation to determine whether a foreign intelligence agency targeted Jensen Huang. But directors expressed support for him, saying there is no reason to believe company secrets or U.S. national security were compromised. However, according to reports, as of Wednesday, after two extramarital affair scandals came to light, directors were meeting to consider removing Jensen Huang. Burry blamed Jensen Huang for NVIDIA Corporation's alleged pressure on customers. "The 'Godfather' has fallen. Likewise, a protection-racketeering system has lost its enforcer in the black jacket," he said. "This coercion appears to come from the top." He also questioned whether Chief Financial Officer Colette Kress is up to the job of replacing Jensen Huang. Colette is seen as one of the potential interim successors. "I don't think Colette or any new CEO can perfectly step into Jensen Huang's shoes," he said. Burry believes replacing Jensen Huang also means losing his influence over customers. "The 'Godfather' was the enforcer, and NVIDIA Corporation will lose both at once." Burry said leadership uncertainty has intensified his concerns about how NVIDIA Corporation finances and sells. "NVIDIA Corporation's key-man risk has always been a concern," he said. "If only that were all." AI funding flows may face a slowdown Burry warned that NVIDIA Corporation's investments in companies that buy its chips could make sales vulnerable when funding slows. "Deal terms and financing structures are the secret weapon that gives an already dominant technology even more power," he said. In the six months ended July 26, NVIDIA Corporation purchased $42.4 billion of equity securities. In August, it announced preliminary partnerships with six financial groups including Apollo and Blackstone, aiming to raise more than $500 billion over time for AI infrastructure. Burry pointed to high leverage across the entire system. "The entire system is enormously leveragedI've found leverage as high as 76 times," he said. He expects NVIDIA Corporation's board to control risk while dealing with the leadership crisis, which could slow the flow of funds to customers. "The threat facing NVIDIA Corporation and its AI ecosystem is that cash flow could be interrupted. New investments will be more cautious, and may not happen at all. There could even be asset write-downs." Customer resistance could squeeze margins Burry alleged that NVIDIA Corporation pressured customers to buy chips before their data centers were ready by threatening to cut future allocations, leaving unused equipment piled up in warehouses without taking depreciation. "The fall of the 'Godfather' gives customers an excuse to slow down deals, bargain, renegotiate terms, or simply switch to competitors without fear of offending NVIDIA Corporation executives," he said. He added that antitrust scrutiny could make it harder to maintain such pressure, exposing the gap between NVIDIA Corporation's rapid GPU releases and the time customers need to build data centers. "NVIDIA Corporation's business won't disappear, but its growth could slow and, critically, its margins could fall." Burry said that if NVIDIA Corporation reduces its reliance on these financing and sales arrangements, its technology would offer greater protection. "Without all this, the company with its software and hardware twin-headed dragon would be relatively more resilient to CEO excesses," he said. "Unfortunately, that is not the case for NVIDIA Corporation." NVIDIA Corporation regulatory risk rises Before the board crisis, the U.S. Department of Justice was already reviewing NVIDIA Corporation's investment and sales practices. Burry expects these issues and chip sales to China to face a new round of scrutiny. Earlier this week, he said: "NVIDIA Corporation's mafia-style behavior of investing in many AI players and making demands, in my view, has long constituted grounds for antitrust litigation." He also warned that Jensen Huang's troubles could attract more attention. "A fallen man attracts all sorts of opportunists." Burry also questioned the timing of chip purchases by NVIDIA Corporation customer Megaspeed, a company linked to Jensen Huang's affair partner. He said: "If there were real evidence, it would not be covered up. Likewise, the absence of evidence will not stop media reports and various allegations. I don't think this will blow over anytime soon." He said the crisis exposed the risk of NVIDIA Corporation's reliance on Jensen Huang: "Investors must realize that absolute power corrupts absolutely, and when a key figure is walking so close to the cliff edge, there is a risk of personal failure."