While you’ve been focusing on the details of Thanksgiving, Michael Burry—the investor famously portrayed by Christian Bale in “The Big Short”—has been intensifying his campaign against Nvidia.
This is a clash worth following because Burry might have a chance to succeed. Unlike many previous warnings about an AI bubble, Burry now has a growing audience and the freedom from regulatory constraints to potentially trigger the very collapse he anticipates. He’s betting against the AI boom and working hard to convince his expanding follower base that Nvidia—the centerpiece of this story—has serious flaws.
Many are now wondering if Burry can sow enough doubt to significantly weaken Nvidia and, by extension, other major players in the AI landscape, including OpenAI.
Burry has fully immersed himself in this effort in recent weeks. He’s been openly criticizing Nvidia and even had a contentious exchange with Palantir CEO Alex Karp after regulatory filings showed he was holding bearish put options on both companies—a bet exceeding $1 billion that they would plummet. Karp described Burry’s strategy on CNBC as “batshit crazy,” prompting Burry to mock Karp for his apparent misunderstanding of SEC filings. This spat highlights a major divide in the market: Will AI genuinely transform everything and justify the massive investments, or are we in a speculative frenzy poised to end poorly?
Burry’s claims are both specific and alarming. He argues that Nvidia’s stock-based compensation has cost shareholders a staggering $112.5 billion, effectively “reducing owner’s earnings by 50%.” He has raised concerns that AI companies are manipulating their financial records by delaying the depreciation of equipment that’s rapidly losing value. Burry believes Nvidia’s customers are overstating the lifespan of its GPUs to rationalize excessive spending. Furthermore, he contends that the apparent demand from AI customers is misleading, as they are “funded by their dealers” in a circular financing loop.
Burry’s criticisms have gained traction, prompting Nvidia to respond, even after a strong earnings report last week. In a seven-page memo circulated to Wall Street analysts last weekend, Nvidia’s investor relations team contested Burry’s calculations, stating he “incorrectly included RSU taxes” (indicating the real buyback figure is $91 billion, not $112.5 billion). They also asserted that Nvidia’s employee compensation aligns with industry peers and emphatically stated they are not another Enron.
Burry’s retort? While he didn’t equate Nvidia to Enron, he likens it to Cisco in the late ‘90s—overbuilding infrastructure that turned out to be unnecessary, leading to a 75% drop in its stock price once reality set in.
This situation could fade into obscurity by Thanksgiving next year, or it could escalate.
Nvidia’s stock has skyrocketed twelvefold since early 2023, and its current market cap is $4.5 trillion. Its rapid rise to being the world’s most valuable company has surpassed any previous market milestone.
However, Burry’s history is mixed. He correctly predicted the housing crisis, which earned him substantial recognition, but since 2008, he’s continuously forecasted various disasters, earning the “permabear” label from critics. Those who closely follow him have often missed significant market rallies. For instance, while he invested early in GameStop, he sold before the stock’s meteoric rise. His short bet against Tesla resulted in considerable losses. After his initial success during the housing crisis, frustrated investors eventually left his fund due to prolonged underperformance.
Earlier this month, Burry deregistered his investment firm, Scion Asset Management, from the SEC, citing “regulatory and compliance restrictions that effectively muzzled my ability to communicate.” He expressed frustration over how people misinterpret his posts on X.
Last weekend, he started a Substack called “Cassandra Unchained,” which he plans to use to further his case against the entire AI industry. The newsletter, which costs $400 per year, promises subscribers insight into his stock market analyses, historical patterns, and predictions.
People are definitely paying attention. Within less than a week of its launch, the newsletter amassed 90,000 subscribers. This leads to a pressing question: Is Burry a warning sign for a collapse that’s imminent, or could his fame, track record, and expanding audience actually catalyze the implosion he foresees?
History offers some precedent. Jim Chanos, a well-known short seller, didn’t create Enron’s accounting scandal, but his high-profile critiques in 2000 and 2001 empowered other investors to question the company, accelerating its downfall. Similarly, hedge fund manager David Einhorn’s thorough takedown of Lehman Brothers’ accounting tricks in 2008 led investors to become skeptical and possibly hastened the loss of confidence that resulted in its collapse. In both instances, genuine underlying issues existed, but a credible critic with a platform ignited a crisis of confidence that proved self-fulfilling.
If enough investors believe Burry regarding AI overbuilding, they will sell, validating his negative outlook. This selling could then encourage more investors to follow suit. Burry doesn’t need to be correct on all details; he just needs to be convincing enough to initiate a rush. Considering Nvidia’s November performance, it appears Burry’s warnings are resonating; however, looking at the stock’s entire yearly performance makes this less clear.
What is undeniably evident is that Nvidia stands to lose a lot, including its massive market cap and status as a crucial player in the AI revolution. In comparison, Burry risks only his reputation and a new platform he seems eager to utilize for the foreseeable future.
