Michael Burry: Nvidia stock is undervalued, but caution is warranted

Nvidia shares jumped Thursday after fiscal Q2 results came in above expectations and it delivered strong current-quarter guidance, supporting near-term upside. However, Michael Burry cautioned investors against chasing NVDA at current valuations, adding a risk-off overlay to the earnings-driven momentum.

Analysis

The first-order read is not that AI demand is fading; it is that the bar for incremental good news has moved materially higher. In that regime, the stock is driven less by absolute demand and more by the slope of revisions, which is why the real risk is not a near-term miss but a slowing rate of estimate upgrades over the next 1-3 quarters. The earnings signal also spills into the broader AI supply chain: semicap and advanced packaging names should stay supported, but any acceleration in custom silicon adoption by hyperscalers would gradually shift bargaining power away from NVDA and toward foundry, networking, and memory adjacencies.

Burry’s caution matters mainly as a positioning signal: crowded longs can keep working for days or weeks, but they become fragile once the stock stops getting upward earnings revisions to justify the multiple. The key falsifier for a bullish continuation is not one quarter of strong demand, but evidence that gross margin, lead times, or customer concentration are normalizing faster than expected, or that one of the large cloud buyers starts signaling capex discipline. Over 6-18 months, the bigger second-order risk is that customers use this period of dependence to accelerate in-house accelerators, turning today’s demand validation into tomorrow’s margin pressure.

For now, the cleanest expression is not an outright short; momentum can dominate. If you want exposure, use defined-risk upside, or own the AI infrastructure complex where valuation is less stretched and the earnings base is less binary. The contrarian view is that the market may be underpricing how quickly capex cycles can pause if macro growth slows, making post-earnings enthusiasm vulnerable once the next set of hyperscaler budgets is disclosed.

Key Decisions for Investors

• Do not initiate an outright NVDA short into the current momentum window; wait 1-2 weeks for post-earnings positioning to reset, then reassess if the stock loses its gap support on heavy volume.
• If wanting upside exposure, prefer a defined-risk NVDA call spread 2-4 months out rather than stock, so you participate in continued revision upside without paying full multiple risk.
• Relative-value idea: long AVGO / short NVDA for 6-12 months if the thesis is that AI monetization broadens while single-name multiple risk remains concentrated in NVDA; thesis fails if NVDA gross margin and guidance keep re-accelerating.
• Watch hyperscaler capex commentary over the next earnings cycle; if one of MSFT/AMZN/GOOGL signals slower AI spend, treat that as the first real catalyst for NVDA multiple compression.
• Use SMH as the cleaner basket expression for an AI infrastructure view; if NVDA is merely the hero name while the rest of the chain lags, the trade is telling you this is becoming a sentiment trade more than a fundamentals trade.