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Michael Burry’s War Against Nvidia: A Battle Worth Watching
While many were busy celebrating Thanksgiving, renowned investor Michael Burry, famously portrayed by Christian Bale in “The Big Short,” has been engaged in an increasingly aggressive campaign against Nvidia. This battle is worth paying attention to, as Burry might actually emerge victorious. What sets this apart from other warnings about an AI bubble is that Burry now has a large audience and the freedom to express himself without regulatory constraints, potentially becoming the catalyst for the collapse he’s predicting.
Burry’s Allegations and Nvidia’s Response
Burry has been leveling specific and damning allegations against Nvidia, claiming that the company’s stock-based compensation has cost shareholders $112.5 billion, effectively reducing owner’s earnings by 50%. He also suggests that AI companies are cooking their books by slow-walking depreciation on equipment that’s losing value rapidly. Furthermore, Burry proposes that customer demand is a mirage, as AI customers are “funded by their dealers” in a circular financing scheme. Nvidia, despite its impressive earnings report, felt compelled to respond to Burry’s allegations, stating that his math is incorrect and that the company’s employee compensation is consistent with industry peers.
Nvidia’s investor relations team sent a seven-page memo to Wall Street analysts, addressing Burry’s claims and asserting that the company is not Enron, as Burry had implied. Burry responded by clarifying that he was comparing Nvidia to Cisco in the late 1990s, when the company overbuilt infrastructure that was not needed, leading to a 75% stock crash. This exchange highlights the central divide in the market: is AI a transformative force worth every billion invested, or are we in the midst of a mania destined to end badly?
The Stakes and Burry’s Track Record
Nvidia’s stock has risen twelvefold since early 2023, with a current market cap of $4.5 trillion. The company’s ascent to becoming the world’s most valuable company is faster than anything the market has seen previously. However, Burry has a complicated track record, having correctly called the housing crisis but also predicting various apocalypses since 2008, earning him the label “permabear” from critics. His investment firm, Scion Asset Management, was deregistered with the SEC earlier this month, and he has launched a Substack newsletter called “Cassandra Unchained,” where he will prosecute his case against the AI industrial complex.
Burry’s newsletter has already gained 90,000 subscribers, and his warnings about AI overbuilding are taking hold. If enough investors believe him, they will sell, validating his bearish thesis and potentially triggering a crisis of confidence. History suggests that this isn’t far-fetched, as prominent critics like Jim Chanos and David Einhorn have accelerated the unraveling of companies like Enron and Lehman Brothers in the past.
The Outcome and Implications
As the situation unfolds, it’s clear that Nvidia has everything to lose, including its massive market cap and position as the most indispensable company of the AI age. Meanwhile, Burry has nothing to lose but his reputation and a new megaphone that he’ll presumably use at full volume for the foreseeable future. The outcome of this battle is uncertain, but one thing is clear: the war between Michael Burry and Nvidia is a drama worth watching, with significant implications for the AI industry and the market as a whole.
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