When you’ve been sweating the small print over Thanksgiving, famed investor Michael Burry – the one portrayed by Christian Bale played in “The Big Short” – has been waging an increasingly aggressive war against Nvidia.
It’s a battle value watching because Burry might actually win it. What makes this different from every other warning about an AI bubble is that Burry now has the audience and the liberty from regulatory constraints to potentially develop into the catalyst for the very collapse he’s predicting. He’s betting against the AI boom, but he’s also proactively attempting to persuade his growing variety of followers that the emperor – Nvidia – has no clothes.
What everyone seems to be now wondering is whether or not Burry can create enough doubt to actually hobble Nvidia and, by association, the opposite primary characters on this story, including OpenAI.
Burry has really thrown himself into the hassle in recent weeks. He’s been slinging mud at Nvidia; he also traded nasty comments with Palantir CEO Alex Karp after regulatory filings revealed Burry held bearish put options on each corporations – a bet value over $1 billion that they’d crash. (Karp went on CNBC and called Burry’s strategy “batshit crazy,” to which Burry responded by mocking Karp for not understanding read an SEC filing.) The spat encapsulates the market’s central divide: is AI going to rework every thing and thus value every billion invested, or are we now in mania territory that’s destined to finish badly?
Burry’s allegations are specific and damning. He says Nvidia’s stock-based compensation has cost shareholders $112.5 billion, essentially “reducing owner’s earnings by 50%.” He has suggested that AI corporations are cooking their books by slow-walking depreciation on equipment that’s losing value fast. (Burry believes that Nvidia customers are overstating the useful lives of Nvidia’s GPUs to be able to justify runaway capital expenditures.) As for all that customer demand, Burry has mainly proposed it’s a mirage because AI customers are “funded by their dealers” in a circular financing scheme.
Enough people have begun citing Burry that Nvidia, despite all its muscle and might and blowout earnings report last week, felt compelled to reply recently. In a seven-page memo sent to Wall Street analysts last weekend by Nvidia’s investor relations team – a development first reported by Barron’s – the corporate fired back, saying that Burry’s math is improper, including because he “incorrectly included RSU taxes” (the actual buyback figure is $91 billion, not $112.5 billion, the memo says). Nvidia’s worker compensation can also be “consistent with peers.” And Nvidia is unquestionably, absolutely, not Enron, thanks very much.
Burry’s response, in a nutshell: I didn’t compare Nvidia to Enron. I’m comparing Nvidia to Cisco circa the late Nineties, when it overbuilt infrastructure that no one actually needed on the time and its stock cratered 75% when everyone realized as much.
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This might all appear like a tempest in a teapot by Thanksgiving next 12 months. Or not.
Nvidia’s stock has gone up twelvefold since early 2023. The corporate’s market cap at this moment is $4.5 trillion. Its ascent to becoming the world’s most respected company is quicker than anything the market has seen previously.
But Burry has a track record that’s complicated. He called the housing crisis, which brought him great acclaim. But since 2008, he has been predicting various apocalypses just about continually, earning him the label “permabear” from critics, while individuals who hearken to him with a sort of cult-like devotion have missed a number of the biggest bull runs in market history. Burry smartly bought GameStop early, for instance, but he then sold his shares before the meme stock explosion. He shorted Tesla and lost a fortune. After his smart housing crisis call, frustrated investors actually fled his fund due to prolonged underperformance.
Earlier this month, Burry deregistered his investment firm, Scion Asset Management, with the SEC. He said it was due to “regulatory and compliance restrictions that effectively muzzled my ability to speak,” explaining that he was frustrated, watching people misinterpret his tweets on X.
Last weekend, he launched a Substack called “Cassandra Unchained” that he’s now using to prosecute his case against your complete AI industrial complex. The descriptor for the newsletter, a yearly subscription to which costs $400, is that it’s now Burry’s “sole focus as he gives you a front row seat to his analytical efforts and projections for stocks, markets, and bubbles, often with a watch to history and its remarkably timeless patterns.”
Individuals are definitely listening. The newsletter launched lower than every week ago, and it already has 90,000 subscribers. Which brings us again to the truly unsettling query hanging over all of this: Is Burry the canary within the coal mine, warning of a collapse that’s inevitable, or could his fame, his track record, his now unrestricted voice, and a fast-growing audience trigger the very implosion he’s predicting?
History suggests this isn’t so crazy. Jim Chanos, the famous short seller, didn’t create Enron’s accounting fraud, but his high-profile criticisms in 2000 and 2001 gave other investors permission to query the corporate and accelerated its unraveling. Outstanding hedge fund manager David Einhorn’s detailed takedown of Lehman Brothers’ accounting tricks at a 2008 conference made other investors more skeptical and can have hastened the lack of confidence that led to collapse. In each cases, the underlying problems were real, but a reputable critic with a platform created a crisis of confidence that became self-fulfilling.
If enough investors imagine Burry about AI overbuilding, they may sell. The selling will validate his bearish thesis. More investors will sell. Burry doesn’t should be right about every detail – he just must be persuasive enough to trigger the stampede. Nvidia’s November performance, it’s easy to conclude Burry’s warnings are taking hold; seeing its shares’ performance over your complete 12 months, it’s less obvious that’s the case.
Much clearer is that Nvidia has every thing to lose, including an almost mind-blowingly massive market cap and its position as probably the most indispensable company of the AI age. Meanwhile, Burry has nothing to lose but his popularity and a brand new megaphone that he’ll presumably be using at full volume for the foreseeable future.