This Thanksgiving’s real drama may be Michael Burry versus Nvidia

As Thanksgiving approaches, famed investor Michael Burry, known for his role in 'The Big Short,' is intensifying his campaign against Nvidia. This confrontation is capturing attention because Burry, unlike before, now possesses both a significant following and the freedom from regulatory pressures to potentially influence the market in line with his dire predictions. Burry is not just betting against the rise of AI; he is actively attempting to persuade his growing audience that Nvidia, often hailed as a leader in the AI sector, is not as sound as it seems. The central question many are asking is whether Burry can instigate sufficient doubt to undermine Nvidia, along with other key players in the AI space, such as OpenAI. In recent weeks, Burry has ramped up his critique. He has engaged in a public spat with Palantir CEO Alex Karp, after regulatory disclosures revealed he holds substantial put options against both companies, positioning him for gains exceeding $1 billion if they fall. Karp dismissed Burry's strategy as “batshit crazy,” leading Burry to mock Karp's understanding of SEC filings. This feud highlights a significant schism in investor sentiment: Is the AI revolution a genuine game-changer deserving of massive investments, or are we witnessing the makings of a bubble set to burst? Burry's allegations are pointed and troubling. He claims Nvidia's stock-based compensation has resulted in a staggering $112.5 billion loss for shareholders, effectively slashing owners’ earnings by half. He also suggests that AI companies may be inflating their financials by misrepresenting the depreciation of rapidly declining equipment values. Burry argues that the perceived demand for AI technology is illusory, contending that customers are merely propped up by circular financing schemes. Nvidia, despite recently reporting robust earnings, felt compelled to respond to Burry's claims. In a detailed memo to Wall Street analysts, Nvidia's investor relations team refuted Burry's calculations, asserting that his figures misrepresent reality and that its employee compensation practices align with industry standards. They emphasized that Nvidia is not facing an Enron-like scenario. Burry, however, clarified that he is comparing Nvidia to Cisco in the late 1990s—a time when overinvestment led to a significant stock decline once the market corrected itself. The future could reveal whether this situation is merely an overblown concern or a portent of something more severe. Nvidia's stock has surged twelvefold since early 2023, with its market capitalization soaring to $4.5 trillion, making it the fastest-growing company of its kind. Burry's history is complex; he accurately predicted the housing crash but has since faced criticism for his continued pessimism, earning him the label of 'permabear.' Although he made early investments in GameStop, he missed the subsequent surge by selling too early. He also shorted Tesla, leading to significant losses. Earlier this month, Burry deregistered his investment firm with the SEC, citing frustrations over regulatory restrictions that limited his communication. He has since launched a Substack newsletter, 'Cassandra Unchained,' which has quickly gained 90,000 subscribers and serves as a platform for his views on the AI industry. This raises an unsettling question: Is Burry a harbinger of an inevitable market collapse, or can his influence, combined with his follower base, trigger the very downfall he predicts? Historical precedents exist where outspoken critics have accelerated the decline of companies by instilling doubt among investors. If enough people heed Burry's warnings about AI overinvestment, it could spark a sell-off that validates his bearish outlook. As Nvidia's stock performance fluctuates, it remains uncertain how much traction Burry's warnings are gaining. However, one thing is clear: Nvidia has a lot at stake, including its status as a cornerstone of the AI era, while Burry may only risk his reputation, which he seems willing to stake on his convictions.