The financial world is watching a unique showdown this Thanksgiving season: investor Michael Burry, famous for predicting the 2008 housing crisis, is aggressively challenging Nvidia’s dominance in the AI market. Unlike other warnings about a potential AI bubble, Burry now has a platform – and freedom from regulatory constraints – that could actually cause the collapse he predicts.
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The Battle Lines Are Drawn
Burry, known for his bearish outlook, isn’t just betting against Nvidia; he’s actively trying to convince his growing audience that the tech giant is overvalued. He’s wagering over $1 billion that Nvidia and other AI leaders, including OpenAI, will fall. The fight escalated recently with a public spat between Burry and Palantir CEO Alex Karp, highlighting the fundamental debate: is AI a transformative force justifying its massive investment, or are we in unsustainable mania?
Specific Allegations and Nvidia’s Response
Burry’s claims are pointed. He argues that Nvidia’s stock-based compensation has effectively eroded shareholder value by $112.5 billion, reducing owner’s earnings by half. He also suggests that AI companies are artificially inflating their financials by delaying depreciation on rapidly losing-value GPUs, and that customer demand is artificially propped up by circular financing.
Nvidia responded with a seven-page memo to Wall Street analysts, disputing Burry’s math and defending its compensation practices. The company insists Burry’s calculations are off by billions, and its employee compensation aligns with industry standards. Essentially, Nvidia denies any Enron-like accounting shenanigans.
The Cisco Comparison: A Warning From History
Burry’s retort? He isn’t comparing Nvidia to Enron; he’s drawing parallels to Cisco in the late 1990s. Back then, Cisco overbuilt infrastructure that proved unnecessary, and its stock plummeted 75% when reality set in. This comparison suggests Burry believes Nvidia is repeating the same mistake by overproducing chips for a market that may not sustain current demand.
A Track Record of Contrarian Calls
Burry’s history is complicated. He correctly predicted the 2008 crisis but has since issued numerous warnings that didn’t materialize. Critics label him a “permabear,” while his followers have often missed out on significant bull runs. He made early money on GameStop but sold before the meme stock frenzy, and lost a fortune shorting Tesla.
Unchained and Amplified
Frustrated by regulatory restrictions, Burry recently deregistered his investment firm and launched “Cassandra Unchained,” a Substack newsletter costing $400 per year. The platform allows him to communicate directly with his audience without constraints, gaining 90,000 subscribers in under a week.
The Self-Fulfilling Prophecy Risk
This raises a critical question: could Burry’s notoriety and unrestricted voice trigger the collapse he’s predicting? History suggests it’s possible. Jim Chanos’s criticisms of Enron and David Einhorn’s takedown of Lehman Brothers both accelerated their unraveling by creating a crisis of confidence.
Burry doesn’t need to be perfectly right; he just needs to persuade enough investors to sell, validating his thesis and sparking a wider stampede. Nvidia, with its $4.5 trillion market cap, has everything to lose. Burry has little to lose but his reputation and now wields a powerful new megaphone.
The outcome remains uncertain, but Burry’s influence is undeniable. His warnings are already taking hold, though the broader market impact is yet to be seen.
