There is a working capital cost to building inventory.
See also: "Security Analysis" - Benjamin Graham - David Dodd (1934)
From CNBC, February 26:
Michael Burry sees Nvidia ‘purchase commitment’ parallel to Cisco at dot-com bubble top
Michael Burry of “The Big Short” fame is doubling down on his bearish thesis on Nvidia , raising red flags on a line item in the chipmaker’s latest earnings report that echoes a pattern seen at the height of the dot-com bubble in the late 1990s. Burry, in a Thursday Substack newsletter, pointed to a surge in Nvidia purchase obligations, which climbed to $95.2 billion from $16.1 billion a year earlier. Total supply obligations, including inventory and purchase agreements, now stand at roughly $117 billion, nearly matching Nvidia’s annual operating cash flow. On the company’s fiscal fourth quarter earnings call Wednesday, Chief Financial Officer Colette Kress said inventory rose 8% quarter over quarter and that Nvidia had “strategically secured inventory and capacity to meet beyond the next several quarters, further out in time than usual.”
For Burry, Nvidia’s comments suggest that the largest public company in the United States is committing to buy large amounts of supply before it knows exactly the strength of future demand. That means more cash is tied up in inventory for longer periods. ‘Not temporary’ “What is happening now is not temporary. It is no export shock. It is not even external. This is coming from within the business plan,” he wrote.
“This new reality reflects a deliberate decision to lock up supply chain capacity further than Nvidia has ever done before.” The noted investor compares the current situation to that of Cisco Systems during the height of the dot-com boom in the late 1990s and the early 2000s. In 2000 and 2001, Cisco secured large supply commitments to support expectations of rapid growth. When corporate technology spending suddenly tumbled, Cisco was left with excess inventory and contractual obligations it couldn’t use. The company ultimately had to write down billions of dollars, and its stock plunged. “This is not business as usual. This is risk,” Burry said of Nvidia.
“Back in 2000-2001, Cisco extended purchase commitments with its suppliers to ensure capacity for that 50% annual growth Cisco expected,” he said. To be sure, Nvidia’s profit margins, now above 70%, are higher than Cisco’s were at the time, which could provide some downside protection, the investor noted. But Burry believes those margins have been boosted by unusually strong demand and Nvidia’s ability to raise prices. “That type of margin would likely revert quickly with a shift in demand,” he wrote. Addressing concerns Still, not everyone sees the buildup as a warning sign....
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The article goes on to discuss Rosenblatt Securities raising their price target from $245 to $300.
The stock was recently changing hands at $185.53 down $10.10 (-5.16%), trading as low as $184.58.
If interested see also "NVIDIA Q4 2026 Earnings Call Transcript - February 25, 2026 (NVDA)" for more detail and for the analyst Q&A.
