Michael Burry, the investor made famous by the “Big Short” Christian Bale’s performance is making some big moves against Nvidia. He’s taking on the top dog of the entire artificial intelligence (AI) industrial complex in a David versus Goliath fashion. His greatest concern now seems to be about Nvidia’s monopolistic practices. This concern has led him to assume a short position on the company’s stock, an attitude that led to an explosive confrontation with Palantir CEO Alex Karp. While this war is a tragedy, it sounds the alarm on Burry’s larger concerns regarding the AI craze and its long-term explosive growth.
Burry is right to criticize Nvidia because, he says, many of the chipmaker’s AI customers are ensnared in a circular financing loop. He claims that these customers are “subsidized by their dealers. He claims this dynamic leads to an inflated surge in demand for AI products. Without profitability and cashflow, he suggests that the current customer enthusiasm is just a ‘mirage.’ Hidden by his bright future is a long-held skepticism of market trends. It’s what has drawn the ire of critics, who have dubbed him a “permabear” for his unrelenting pessimism since 2008.
The specific nature of the allegations that Burry has leveled against Nvidia makes these claims very serious. Here’s why he believes customers are overclaiming the longevity of Nvidia’s graphics processing units (GPUs). Now this over-exaggeration is being used to justify their bloated budgets on capital expenditures. Yet this rather bold assertion invites scrutiny and skepticism regarding the sustainability of Nvidia’s exploding revenue streams and long-term profitability. Burry’s investment firm, Scion Asset Management, has taken a courageous position against Nvidia and Palantir. He’s shorting them with more than $1 billion in bearish put options on each company.
Burry made his first big splash into public discourse this year with the release of his new newsletter, “Cassandra Unchained.” This amazing new project has garnered some 90,000+ subscribers already! The newsletter aims to disseminate his views on various investment strategies and market trends, particularly focusing on what he perceives as the overvaluation of certain tech stocks driven by hype rather than fundamentals.
In a notable exchange with Karp, Burry’s aggressive stance was met with criticism, as Karp described Burry’s strategy as “[batshit crazy].” In kind, Karp issued a sharp rebuttal, laughing at Burry’s comprehension of regulatory filings—a testament to the former’s eye for detail and pride in his work. This ping pong action illustrates the real stakes behind their stance. It raises the larger issues for investors in these companies.
Burry’s mathematical analysis of Nvidia’s controversial $40 billion stock buyback program has been met with some skepticism. First he accused Nvidia of doing a large $112.5 billion buyback. Nvidia’s investor relations team was swift to contest this, claiming that Burry had “miscalculated by including RSU taxes. They explained that the real buyback number is $91 billion. This discrepancy is a reminder that financial reporting is not always straightforward. It’s gratifying in that it highlights the central importance of exactitude in our investments’ analysis.
Burry has a perfect history for forecasting financial collapses. For all of the praise he has received, he has been criticized for having missed some of the largest bull runs in market history. His understated style makes him a lightning rod for controversy among investors and analysts. By questioning common assumptions about where AI technologies are going and the nature of their business models, he makes things contentious and interesting.
Of course, Burry still wants you to know that he’s warning you against investing in Nvidia and Palantir. His stance should strike a chord with all investors similarly wary of the tech sector’s ongoing growth story. We can’t say whether he will be right in those predictions. The new chief is likely to face even greater hurdles as the market turns against him.