Tesla's Sky-High Valuation and Shareholder Dilution
Michael Burry has voiced strong criticism regarding Tesla's valuation, stating that the company is "ridiculously overvalued" and has been for a considerable period. In a post shared on his Substack, Burry highlighted Tesla's forward earnings multiple of 209 times as a key indicator of this overvaluation.
The hedge fund manager also directly addressed Elon Musk's management style, expressing concerns about Tesla's escalating shareholder dilution. Burry explained that Tesla dilutes its stock by 3.6% annually through stock-based compensation, with no corresponding stock buybacks to support its share price. He further noted that Musk's recently approved $1 trillion compensation package is expected to exacerbate this dilution.
Critique of Shifting Tech Promises
Burry also took aim at Tesla's tendency to pivot between futuristic technology promises. He observed a pattern where enthusiasm shifts from electric cars to autonomous driving, and most recently to robots, suggesting that each focus is adopted until competition emerges.
While Burry did not disclose his current investment position in Tesla, he has a history of shorting the stock. This sentiment is echoed by other investors like Jim Chanos, who has also raised concerns, particularly regarding Nvidia's vendor financing practices.
Burry's critique comes at a time when some Wall Street analysts are increasing their outlook for Tesla. Analysts from Melius Research and Stifel have recently issued positive ratings and price target increases, citing Tesla's advancements in chip technology, autonomy, and robotaxi capabilities.
Concerns Over Nvidia and AI Demand
In addition to Tesla, Burry has also expressed skepticism about Nvidia. He revealed new short positions in both Nvidia and Palantir, utilizing put options to bet on a decline in their stock prices.
Burry argued that Nvidia's stock-based compensation has cost shareholders $112.5 billion, effectively halving their true earnings. He accused AI companies of manipulating their financial reporting by concealing depreciation on hardware and exaggerating the lifespan of their GPUs to justify substantial expenditures.
Furthermore, Burry suggested that the demand for AI is artificially inflated, with many AI customers relying on vendor financing from the very companies selling them equipment. He described this as a circular financing scheme designed to sustain the illusion of demand.
Nvidia responded to Burry's claims with a memo to analysts, asserting that his calculations were incorrect, partly due to the inclusion of RSU taxes. The company stated that the actual buyback figure is $91 billion and that its employee compensation practices are in line with industry peers, clarifying that it is not comparable to Enron.
Burry countered by stating that his comparison was not to Enron, but rather to Cisco in the late 1990s. He drew a parallel to Cisco's overbuilding of infrastructure, which eventually led to a significant stock price decline when the market realized the excess capacity.
Despite Nvidia's significant stock growth since early 2023 and its substantial market capitalization, Burry remains unconvinced about the long-term sustainability of its business model and growth trajectory.
Burry's Investment Track Record
Michael Burry's investment career is marked by significant foresight, most notably his early prediction of the 2008 housing market collapse. However, he has also been known to issue warnings about market downturns that materialize earlier than expected, earning him the label "permabear." While he successfully invested in GameStop early on, he divested his position before the stock's major surge in 2021.