Reuters
- Nvidia is growing at the expense of other Big Tech companies, Jim Chanos and Larry McDonald said.
- Nvidia is raking in profits while its customers are racking up bills, they said.
- Microsoft and Meta are among the largest buyers of Nvidia's microchips.
Nvidia is cannibalizing the growth of other "Magnificent Seven" companies, according to two veteran investors.
The chip maker's revenue surged 126% to almost $61 billion in the year to January 28, boosting its net income by nearly 600% to about $30 billion, it revealed this week. That included year-on-year revenue growth of 265% and net income growth of 769% in the fourth quarter.
Excited investors have boosted Nvidia's stock price from about $400 in late October to nearly $800, adding about $1 trillion to its market capitalization in just four months. The semiconductor specialist is now more valuable than Amazon and Alphabet, and the only US companies worth more are Apple and Microsoft.
However, Nvidia's last two earnings reports show that it made almost a fifth of its revenues, about $12 billion, from a single customer last year, while its second-biggest customer accounted for 10%, or about $3.9 billion, in the nine months through October.
Those customers are probably Microsoft and Meta given their massive investments in artificial intelligence and the metaverse. Thus, it appears that Nvidia's astronomical growth is coming at the literal expense of its Big Tech rivals.
"Just a friendly reminder that most of Mag 7 darling $NVDA's OCF is actually capex from other Mag 7 darlings," Jim Chanos said in a X post on Thursday, referring to operating cash flow and capital expenditure.
The spending bonanza represents "immediate revenue/profit for $NVDA, but capitalized costs for their Big Tech customers," Chanos continued. "Who just extended the depreciable lives of their data center equipment (like $NVDA chips)."
The famed short-seller — who helped to take down Enron, Tyco, and WorldCom — was underscoring that Nvidia is raking in cash that it can use to run and expand its business, make acquisitions, or fund returns to shareholders. Meanwhile, its Big Tech customers are spending a fortune on chips that will steadily lose value over time.
'Cannibalism'
Larry McDonald, a former trader and the founder of "The Bear Traps Report," echoed Chanos' point in his own X post.
"Mag 7 Cannibalism, rolls on … until the music stops, tick toc," he said.
Of course, Nvidia's customers are scrambling to buy its chips because they need them to power products and services that they expect to generate huge profits in time.
But it's possible the likes of Microsoft and Meta won't want as many chips in the future, or will decide they're spending too much and cut back. They could also build their own chips, or buy cheaper ones from another supplier, stalling Nvidia's gravy train.
Chanos said in another X post that he holds "no position" in Nvidia. His firm, which he shut down last year, had bearish put options on nearly two dozen companies including Nvidia and Tesla at the end of September.