Hustler Words – As families gather for Thanksgiving, a different kind of drama is unfolding: a high-stakes battle between famed investor Michael Burry, of "The Big Short" fame, and tech giant Nvidia. Burry has launched an increasingly vocal campaign against the company, raising serious questions about its valuation and the broader AI boom.
This isn’t just another warning about a potential AI bubble. Burry’s unique position, now amplified by a growing audience and freedom from regulatory constraints, gives him the potential to be a catalyst for the very downturn he predicts. He’s not just betting against the AI surge; he’s actively trying to convince his followers that Nvidia, the perceived leader in the field, is overvalued.
The central question is whether Burry can sow enough doubt to significantly impact Nvidia and, by extension, other key players like OpenAI.
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Burry’s recent efforts have been aggressive. He’s publicly criticized Nvidia and engaged in heated exchanges with Palantir CEO Alex Karp after filings revealed Burry’s billion-dollar bearish bet against both companies. Karp dismissed Burry’s strategy as "batshit crazy," prompting a sharp retort from Burry. This feud highlights the market’s fundamental debate: Is AI a transformative force deserving of massive investment, or are we in a speculative frenzy destined for a painful correction?
Burry’s specific accusations are pointed. He claims Nvidia’s stock-based compensation has cost shareholders $112.5 billion, effectively cutting owner’s earnings in half. He also suggests that AI companies are manipulating their financials by delaying depreciation on rapidly depreciating equipment, particularly Nvidia’s GPUs. Furthermore, he alleges that customer demand is artificially inflated by circular financing schemes.
Despite its impressive financial performance, Nvidia felt compelled to respond to Burry’s claims. In a memo to Wall Street analysts, the company refuted Burry’s math, arguing that he incorrectly included RSU taxes and that its employee compensation is in line with industry peers. Nvidia vehemently denied any comparison to Enron.
Burry’s counter-argument: He’s not comparing Nvidia to Enron, but to Cisco in the late 1990s, which overbuilt infrastructure and saw its stock plummet when demand failed to materialize.
The outcome remains uncertain. Nvidia’s stock has surged twelvefold since early 2023, reaching a market cap of $4.5 trillion. Its rapid ascent is unprecedented.
However, Burry’s track record is complex. He famously predicted the housing crisis, but his subsequent predictions of various economic apocalypses have earned him the label "permabear." While some have profited from his insights, others have missed out on significant market gains. He bought GameStop early but sold before the meme stock frenzy and lost money shorting Tesla.
Recently, Burry deregistered his investment firm, citing regulatory constraints that limited his communication. He has since launched a Substack newsletter, "Cassandra Unchained," to freely express his views on the AI industry. The newsletter, priced at $400 per year, already boasts 90,000 subscribers.
This raises a critical question: Is Burry a reliable warning sign of an impending collapse, or could his influence and platform trigger the very crisis he foresees?
History offers some parallels. Jim Chanos’ criticisms of Enron and David Einhorn’s scrutiny of Lehman Brothers contributed to a loss of confidence that accelerated their downfall.
If enough investors believe Burry’s warnings about AI overbuilding, they may sell their shares, validating his bearish thesis and triggering further selling. Burry doesn’t need to be entirely correct; he only needs to be persuasive enough to start the stampede.
Nvidia has much to lose, including its massive market cap and its position as a crucial player in the AI revolution. Burry, on the other hand, has little to lose but his reputation and a newly acquired platform that he intends to use to its full potential.
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