While many were focused on holiday preparations, famed investor Michael Burry, famously portrayed by Christian Bale in "The Big Short," has been escalating an aggressive campaign against Nvidia. This high-stakes battle is drawing significant attention, as Burry's unique position could make him a catalyst for the very market collapse he's predicting.
Unlike previous warnings about an impending AI bubble, Burry now commands a substantial audience and operates free from the regulatory constraints that once limited his public commentary. He's not just betting against the AI boom; he's actively working to convince his rapidly growing following that Nvidia, the perceived emperor of AI, has no clothes. The central question now is whether Burry can sow enough doubt to significantly impact Nvidia and, by extension, other key players in the AI landscape, including OpenAI.
Burry's Allegations and Market Spats
In recent weeks, Burry has intensified his efforts, publicly criticizing Nvidia. He also engaged in a heated exchange with Palantir CEO Alex Karp after regulatory filings revealed Burry held bearish put options on both companies—a bet exceeding $1 billion that their stocks would crash. Karp famously called Burry's strategy "batshit crazy" on CNBC, to which Burry responded by mocking Karp for misinterpreting SEC filings. This public spat encapsulates the market's core division: is AI a transformative force justifying massive investments, or are we in a speculative mania destined for a painful end?
Burry's accusations against Nvidia are specific and pointed. He claims Nvidia's stock-based compensation has cost shareholders $112.5 billion, effectively "reducing owner's earnings by 50%." He further suggests that AI companies are inflating their financials by slowing the depreciation of rapidly devaluing equipment. Burry posits that Nvidia customers are overstating the useful lives of GPUs to justify excessive capital expenditures. Regarding customer demand, he argues it's largely an illusion, as AI clients are "funded by their dealers" in a circular financing scheme.
Nvidia's Defense and Burry's Rebuttal
Burry's growing influence has prompted Nvidia to respond, even after a strong earnings report. In a seven-page memo sent to Wall Street analysts, first reported by Barron's, Nvidia's investor relations team refuted Burry's calculations. The company stated that Burry "incorrectly included RSU taxes," asserting the actual buyback figure was $91 billion, not $112.5 billion. Nvidia also maintained that its employee compensation practices are "consistent with peers" and emphatically denied any comparison to Enron.
Burry's response was concise: he clarified that he wasn't comparing Nvidia to Enron but rather to Cisco in the late 1990s. He drew parallels to Cisco's overbuilding of infrastructure that proved unnecessary at the time, leading to a 75% stock collapse once the market realized the misallocation.
Burry's Track Record and New Megaphone
Nvidia's stock has surged twelvefold since early 2023, reaching a market capitalization of $4.5 trillion at one point—an unprecedented ascent. However, Burry's track record is complex. While he famously predicted the 2008 housing crisis, earning him widespread acclaim, he has also been dubbed a "permabear" by critics for consistently forecasting various market apocalypses since then. Investors who followed him blindly have missed significant bull runs. For instance, he smartly bought GameStop early but sold before the meme stock explosion and lost a fortune shorting Tesla. His fund even saw investors depart due to extended underperformance after his successful housing market call.
Earlier this month, Burry deregistered his investment firm, Scion Asset Management, with the SEC. He cited "regulatory and compliance restrictions that effectively muzzled my ability to communicate," expressing frustration over misinterpretations of his tweets on X (formerly Twitter).
Last weekend, he launched a Substack newsletter titled "Cassandra Unchained," which he now uses to present his case against the entire AI industrial complex. The newsletter, costing $400 annually, is described as his "sole focus as he gives you a front row seat to his analytical efforts and projections for stocks, markets, and bubbles, often with an eye to history and its remarkably timeless patterns."
With 90,000 subscribers in less than a week, people are clearly listening. This brings us to the truly unsettling question: Is Burry a canary in the coal mine, signaling an inevitable collapse? Or could his fame, his track record, his newly unrestricted voice, and a rapidly growing audience inadvertently trigger the very implosion he's predicting?
The Power of a Credible Critic
History offers precedents for such a scenario. Jim Chanos, the renowned short seller, didn't create Enron's accounting fraud, but his high-profile criticisms in 2000 and 2001 empowered other investors to question the company, accelerating its downfall. Similarly, hedge fund manager David Einhorn's detailed expose of Lehman Brothers' accounting practices at a 2008 conference increased investor skepticism, potentially hastening the loss of confidence that led to its collapse. In both cases, genuine underlying problems existed, but a credible critic with a public platform created a crisis of confidence that became self-fulfilling.
If enough investors believe Burry's warnings about AI overbuilding, they will sell, validating his bearish thesis and prompting further selling. Burry doesn't need to be right about every detail; he simply needs to be persuasive enough to trigger a stampede. While Nvidia's November performance might suggest Burry's warnings are gaining traction, its year-long stock performance makes that conclusion less clear.
What is evident is that Nvidia stands to lose an almost unfathomable market capitalization and its position as the AI age's most indispensable company. Meanwhile, Burry has little to lose beyond his reputation, now armed with a new, unrestricted megaphone that he appears ready to use at full volume for the foreseeable future.
