Michael Burry Warns Nvidia Mirrors Cisco in Today’s AI Boom

Michael Burry has expressed renewed concerns about a potential artificial intelligence (AI) bubble, comparing today’s tech landscape to the late-1990s dotcom crash. In a recent Substack post titled, “The Cardinal Sign of a Bubble: Supply-Side Gluttony,” Burry highlighted Nvidia as a company that exemplifies risks amidst the current AI frenzy.

Burry’s Analysis of AI Boom

Burry, who gained fame for predicting the 2008 housing market collapse, labeled the current AI boom a “glorious folly.” He argues that companies often innovate themselves to failure, with Nvidia standing out as a pivotal player in this trend. He stated that while folly can generate profits, it frequently leads to unsustainable market behavior.

Comparing Tech Eras

During the dotcom boom, notable tech giants like Microsoft, Intel, Dell, and Cisco dominated the market. Burry points out that today’s AI landscape features five key players: Microsoft, Google, Meta, Amazon, and Oracle. He emphasizes that Nvidia mirrors Cisco, which once showcased extraordinary growth before its stock endured a significant collapse.

• Cisco’s Rise and Fall: Cisco’s stock soared by 3,800% from 1995 to 2000, then crashed by over 80% in the early 2000s.
• Nvidia’s Current Status: Currently, Nvidia is valued at approximately $5 trillion, making it the most valuable company globally.

Market Concerns and Regulatory Actions

Burry’s apprehensions extend beyond anecdotal comparisons. He has cast doubt on the inflated valuations of AI firms, particularly Nvidia. His hedge fund, Scion Asset Management, recently invested over $1 billion in put options for Nvidia and Palantir, reflecting his bearish stance.

Potential Risks in AI Investments

Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, echoed similar concerns. She has warned of a potential “Cisco moment” for the tech industry within the next two years, highlighting the intertwined financial relationships among AI companies.

• Nvidia pledged $100 million to OpenAI and $10 billion to Anthropic, which in turn will invest $30 billion to enhance its AI model.
• This circular funding creates an ecosystem of interdependencies that could be unsustainable.

Nvidia’s Response

In response to critics, Nvidia has showcased its strong earnings, reporting a 62% revenue increase last quarter. CFO Colette Kress defended the longevity of the company’s hardware, attributing its efficiency to the CUDA software system. CEO Jensen Huang downplayed bubble concerns, asserting that Nvidia’s innovations and future investments form a solid foundation for sustained growth.

While the AI boom continues to generate excitement, Burry’s analyses serve as a cautionary perspective, urging investors to consider potential pitfalls reminiscent of past tech bubbles.