While you’ve been sweating the details over Thanksgiving, celebrity investor Michael Berry — played by Christian Bale who starred in “The Big Short” — is waging an increasingly aggressive war against Nvidia.
It’s a fight worth watching because Burry can win it. What makes this different from every other warning about an AI bubble is that Burry now has the audience and the freedom from regulatory constraints to potentially become the catalyst for the very collapse he predicts. He’s betting against the AI boom, but he’s also proactively trying to convince his growing number of followers that the emperor — Nvidia — has no clothes. What everyone is wondering now is whether Burry can create enough doubt to actually destroy Nvidia and, collectively, the other main characters in this story, including OpenAI.
Burry has really thrown himself into the effort in recent weeks. Throwing mud at Nvidia. also traded nasty comments with Palantir CEO Alex Karp after regulatory filings revealed Burry had short put options on both companies — a bet worth more 1 billion dollars that will crash. (Karp went on CNBC and called Burry’s strategy “fucking crazy”, to which Barry replied mocking Karp (because you don’t understand how to read an SEC filing.) The spat encapsulates the market’s central divide: is AI going to transform everything and therefore be worth every billion invested, or are we now in frenzy territory that’s destined to end badly?
Berry’s allegations are specific and damning. It says Nvidia’s stock-based compensation cost shareholders $112.5 billion, effectively “reducing owner profits by 50 percent.” He has suggested that AI companies are cooking their books with slow depreciation on equipment that quickly loses its value. (Burry believes Nvidia’s customers are overestimating the useful lives of Nvidia’s GPUs to justify rampant capital spending.) As for all this customer demand, Burry has basically suggested it’s a mirage because AI customers are “funded by their dealers” in a circular funding system.
Several people started quoting Burry that Nvidia, despite its earnings report last week, felt compelled to respond recently. In a seven-page note sent to Wall Street analysts last weekend by Nvidia’s investor relations team – a development reported for the first time from Barron’s – the company responded, saying Burry’s math is wrong, including because he “incorrectly included RSU taxes” (the actual buyout amount is $91 billion, not $112.5 billion, the memo says). Nvidia’s employee compensation is also “consistent with peers.” And Nvidia is definitely, absolutely, not Enron, thank you very much.
of Berry answerin short: I didn’t compare Nvidia to Enron. I compare Nvidia to Cisco circa the late 1990s when they overbuilt infrastructure that no one really needed at the time and their stock cratered 75% when everyone realized as much.
All of this could look like a tempest in a teapot by next year’s Thanksgiving – or not! Nvidia stock has increased twelvefold since the beginning of 2023. The company’s market capitalization is currently $4.5 trillion. Its rise to become the world’s most valuable company is faster than anything the market has seen before. But Burry has a history that is complicated. He called the housing crisis, which brought him great recognition. But since 2008, he’s been predicting various revelations almost constantly, earning him the label “permabear” from critics, while people who listen to him with a kind of devotion have missed some of the biggest bull runs in market history. Burry smartly bought GameStop early, for example, but then sold his stock before the meme stock boom. He screwed Tesla and lost a fortune. After his appeal of the smart housing crisis, frustrated investors abandoned his fund due to widespread underperformance.
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Earlier this month, Burry delisted his investment firm, Scion Asset Management, from the SEC. He said it was because of “regulatory and compliance restrictions that essentially blocked my ability to communicate,” explaining that he was frustrated to see people misinterpreting his tweets on X.
Last weekend, a Substack launched called “Cassandra AdespotiThe descriptive nature of the newsletter, a $400 annual subscription, is that it’s now Burry’s exclusive focus, giving you a front-row seat to his analytical efforts and predictions about stocks, markets and bubbles, often with an eye for history.
People are definitely listening. The newsletter was launched less than a week ago and already has 90,000 subscribers. Which brings us to the truly troubling question hanging over all of this: Is Burry the canary in the coal mine, warning of a collapse that is inevitable? Or is his fame, his track record, his now limitless voice and his rapidly growing audience causing the very collapse he predicts?
History shows that this is not so crazy. Jim Chanos, the famous short seller, did not create Enron’s accounting fraud, but his high-profile criticisms in 2000 and 2001 gave other investors permission to challenge the company and hastened its collapse. Prominent hedge fund manager David Einhorn’s detailed debunking of Lehman Brothers’ accounting tricks at a 2008 conference made other investors more skeptical and may have accelerated the loss of confidence that led to the collapse. In both cases, the underlying problems were real, but a trusted critic with a platform created a crisis of confidence that became self-fulfilling.
If enough investors believe in Burry for the AI superstructure, they will sell. The sale will validate his bearish thesis. More investors will sell. Burry doesn’t need to be right on every detail – he just needs to be convincing enough to cause a stir. Looking at Nvidia’s November performance, it’s easy to conclude that Burry’s warnings have validity. looking at its stock performance throughout the year, it’s less obvious that’s the case.
Much clearer is that Nvidia has everything to lose, including its almost unbelievable market capitalization and its position as the most indispensable company of the AI age. Meanwhile, Burry has nothing to lose but his reputation and a new megaphone that he’ll likely be using at full volume for the foreseeable future.
