TLDR
- Michael Burry owns bearish put options on Nvidia and Palantir, costing roughly $10 million each with a combined notional value of $1.1 billion
- Burry called Nvidia’s response memo “disappointing” and said it contained “straw man arguments” that didn’t address his actual concerns
- His main concern is AI companies stretching depreciation schedules on chips to 5-6 years instead of 3 years, potentially setting up future writedowns
- Burry compares Nvidia’s position in AI to Cisco’s role in the dot-com bubble, which lost 90% of its value after the crash
- Nvidia shares have dropped 14% from their November 3 high as investor concerns about AI overspending grow
Michael Burry has revealed he’s betting against two major AI companies. The investor made famous by “The Big Short” disclosed he owns bearish put options on both Nvidia and Palantir.
The positions were first shown in Scion Asset Management’s 13F filing on November 3. The combined notional value of the bets reached $1.1 billion. Burry clarified the actual cost was around $10 million for each position.
Burry has now closed his hedge fund to outside investors. He recently launched a Substack newsletter called “Cassandra Unchained” priced at $39 per month. Through this platform, he’s been detailing his concerns about the AI sector.
Nvidia’s Response Called “Disappointing”
Nvidia circulated a private memo to Wall Street analysts addressing Burry’s criticisms. Burry said the memo was “disappointing” and contained “one straw man after another.” He even suggested it “almost reads like a hoax.”
The investor said Nvidia responded to claims he never made. He explained he never suggested Nvidia was manipulating its own property, plant, and equipment depreciation. Nvidia is primarily a chip designer with minimal capital expenditures, not a manufacturer.
Burry’s actual concern focuses on AI companies buying Nvidia chips. These companies are stretching depreciation schedules to five or six years instead of three. This accounting choice increases short-term profits and asset values but could lead to large writedowns later.
Microsoft CEO Satya Nadella recently mentioned slowing data center construction. Nadella expressed concern about overbuilding infrastructure for one generation of AI chips. The next generation will require different power and cooling specifications.
Comparison to Dot-Com Era Cisco
Burry drew parallels between Nvidia’s current position and Cisco during the dot-com bubble. Cisco was the infrastructure provider for internet expansion in the late 1990s. The company lost nearly 90% of its value when the bubble burst.
In his Substack post titled “The Cardinal Sign of a Bubble: Supply-Side Gluttony,” Burry wrote about the comparison. “And once again there is a Cisco at the center of it all, with the picks and shovels for all and the expansive vision to go with it. Its name is Nvidia,” he stated.
Burry also raised questions about circular funding in the AI industry. Cloud giants and AI labs fund each other and then spend heavily on Nvidia hardware. He called these “give-and-take” deals.
Nvidia pushed back on this point in its memo. The company said strategic investments represent only a small fraction of revenue. Nvidia stated that companies it backs make most of their money from outside customers.
Burry mentioned concerns about Nvidia’s stock-based compensation and buyback programs. He argued that share dilution costs more than the company’s reported figures show. Nvidia countered that Burry’s buyback calculations were incorrect and described its business as “economically sound” and reporting as “complete and transparent.”
The investor said he stands by his analysis. He promised to provide more detail in future Substack posts. Burry wrote he has “been drawn into something much bigger than me” based on the reaction to his comments.
Nvidia remains one of the market’s top performers with a valuation exceeding $5 trillion. CEO Jensen Huang dismissed bubble concerns on a recent earnings call. The stock jumped about 5% following strong quarterly results.
Nvidia shares have declined 14% from their November 3 peak. Growing investor concerns about AI overspending have contributed to the pullback. Burry’s put option on Nvidia covered 1 million shares with a notional value of about $187 million before he deregistered his fund with the SEC in mid-November.
Burry returned to social media platform X in late October after a two-year absence. He has been making the case that AI stocks are in a bubble. He closed a recent Substack post with a Charlie Munger quote: “If you go around popping a lot of balloons, you are not going to be the most popular fellow in the room.”
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