NVIDIA Corporation (NASDAQ:NVDA) was trading at around $238 on October 5, near its 52-week high, days after it showed investors a slide defending how long its chips hold their value. Michael Burry answered on October 4 by quoting a book from 1968.
“We have all been here before,” he wrote. His reply was a scene from Adam Smith’s “The Money Game,” and the specifics are what sting.
READ ALSO: Marvell vs. Broadcom: Which Custom AI Chip Stock Has More Room to Run?
The Passage Describes 1968 and Reads Like Now:
In it, a speculator called the Great Winfield mocks a critic for asking “how fast these computers are written off.” Such questions, he says, prove the man “middle-aged.” Winfield prefers young investors buying computer leasing stocks. One explains he buys data processing companies with leverage, putting up “at least three percent cash.”
Their argument was that the need for computers was “practically infinite” and earnings would double yearly because “the surface has barely been scratched.” Asked about valuations, the young investor smiles. The older generation cannot follow the “New Math.”
Burry’s point is that the objection Nvidia’s slide was built to dismiss is the objection 1968 dismissed in the same tone. The dispute itself is accounting. Burry argues the large buyers depreciate these chips over five to six years when the economic life is closer to two or three, which flatters their earnings.
Nvidia sent analysts a memo naming him directly, arguing four to six years is right because older chips keep earning rental income.
DON’T MISS: Jim Cramer on Broadcom (AVGO): “The Stock May Be Too Cheap to Ignore”
What Nvidia’s Own Accounts Say:
The depreciation question does not touch Nvidia’s own earnings. It touches its customers’. Nvidia sells the chips, so a longer assumed life flatters the buyer’s income statement rather than the seller’s. Its own margins are extraordinary either way, at 66.24% operating margin on revenue growing 105.90%.
It reaches Nvidia one step later. Chips written off over six years get replaced less often than chips written off over two, so the argument is about the order book rather than current profit. One figure is worth holding against that. Net income was $192.88 billion and levered free cash flow $41.81 billion.
Profit running four times ahead of cash is what a company growing this fast looks like, and it is why the order book matters. The balance sheet is not strained. Cash of $62.47 billion exceeds $38.86 billion of debt. Whether these chips last two years or six is the question the next order book answers. We named ten stocks for the year ahead, and the list is here.
The Valuation Case:
Nvidia traded near $238 on October 5 and is worth $5.45 trillion, up 26.09% over twelve months. Sustainability is exactly what the two sides are arguing about. A 66.24% operating margin only persists while buyers keep replacing these processors on the current cycle.
On price, the earnings multiples are the least stretched part, at 28.51 times trailing and 24.88 times forward. The premium sits in the asset measures, at 18.16 times sales and 23.78 times book value.
Short interest is 1.27% of the float with the shares at a 52-week high, which is itself the kind of reading that passage is about. We looked at 33 stocks that could double inside three years in this list.
Conclusion:
Burry’s argument is not that Nvidia’s numbers are wrong. Revenue grew 105.90% on a 66.24% operating margin, and the balance sheet holds more cash than debt. His argument is that the question Nvidia set out to close is the one the market waved away in 1968, in the same vocabulary. However, the chips either last five years or they do not, which is an empirical matter rather than a rhetorical one. The number to watch is the replacement cycle, because both sides turn on it.
Market Sentiment:
NVIDIA Corporation was held by 285 hedge funds with a combined stake value of about $94.67 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 275 hedge fund holders with a cumulative investment value of around $83.89 billion in the previous quarter.
READ NEXT: Marvell vs. Broadcom: Which Custom AI Chip Stock Has More Room to Run? and Jim Cramer on Broadcom (AVGO): “The Stock May Be Too Cheap to Ignore”
This article is originally published at Insider Monkey.
