Michael Burry Faces Off Against Nvidia This Thanksgiving
Michael Burry, the notable investor known for his role in “The Big Short,” is taking a strong stance against Nvidia this Thanksgiving. Burry, who warned of an impending downturn in the AI sector, is betting significantly on a decline in Nvidia’s stock value. He aims to raise skepticism about the tech giant, drawing attention to what he perceives as flaws in its business practices.
Michael Burry’s Bold Predictions
Burry believes Nvidia’s stock-based compensation has led to a staggering loss of $112.5 billion for shareholders. He contends that this has resulted in a significant reduction of owners’ earnings, approximately 50%. Burry also alleges that companies within the AI sector may be manipulating financial records regarding asset depreciation. He argues that Nvidia’s customers are exaggerating the lifespan of their GPUs to justify excessive spending.
The Growing Dispute
In recent weeks, Burry has intensified his criticism, directly challenging Nvidia and sparking a public dispute with Palantir CEO Alex Karp. Following regulatory disclosures of Burry’s substantial bearish put options on both Nvidia and Palantir, Karp called Burry’s strategies “batshit crazy.” In response, Burry criticized Karp for not grasping the complexities of SEC filings.
Nvidia’s Response
Despite impressive earnings, Nvidia felt compelled to defend itself. The company addressed Burry’s claims in a memo to Wall Street analysts. It asserted that his calculations are flawed and clarified that its real buyback figure is $91 billion, not $112.5 billion. Nvidia also stated that its compensation practices align with industry standards and dismissed any comparisons to Enron.
Burry’s Historical Insight
Burry draws parallels between Nvidia and Cisco’s overexpansion in the late 1990s, which led to a significant stock decline. His concerns imply that Nvidia may face similar repercussions if investor confidence falters. Currently, Nvidia’s market valuation has surged to $4.5 trillion, marking an unprecedented rise since early 2023.
The Role of Public Perception
Burry’s previous predictions have earned him a mix of acclaim and criticism. While he accurately forecasted the housing crisis, some of his subsequent predictions have led to criticism as a “permabear.” Recently, he deregistered his firm, Scion Asset Management, with the SEC, citing regulatory restrictions that impeded his communication.
Engaging the Audience
To further his viewpoints, Burry launched a Substack newsletter titled “Cassandra Unchained.” The newsletter, which costs $400 annually, quickly gained traction with 90,000 subscribers, proving Burry’s influence and the public’s interest in his predictions regarding the AI industry.
The Bigger Picture
The core issue revolves around whether Nvidia’s soaring valuation is sustainable or if it is a sign of a larger market bubble. Historical precedents suggest that vocal critics can trigger widespread investor panic, potentially validating bearish predictions. With Burry’s increasing audience and communication channels, he might have the capacity to influence investor sentiment significantly.
Conclusion
This Thanksgiving, the confrontation between Michael Burry and Nvidia underscores a pivotal moment in the tech sector. As Burry continues to amplify his warnings, the future of Nvidia remains uncertain. The outcomes of these predictions could have far-reaching implications for the AI industry as a whole.
