Michael Burry says he’s betting against Nvidia instead of Meta, Alphabet, or Microsoft because the chipmaker is particularly vulnerable to the AI boom ending in disaster.
Nvidia is “simply the purest play,” Burry wrote in a Substack post last weekend. The company has become “entirely dependent on hyperscaler spending, and I do not see how that math works,” he continued.
The investor of “The Big Short” fame, who pivoted from running a hedge fund to writing online late last year, added that Nvidia is likely to “sell $400 billion of its chips this year and there are less than $100 billion in application layer use cases.”
“Nvidia also is the most loved, and least doubted,” Burry wrote. “So shorting it is cheap.”
Burry also name-checked CoreWeave, a provider of cloud services built for AI and a strategic partner of Nvidia, calling it the graphics-processor giant’s “pet.”
Nvidia’s stock price has surged 12-fold since the start of 2023, making the graphics-chip maker the world’s most valuable public company with a $4.5 trillion market capitalization.
Nvidia did not respond to a request for comment from Business Insider.
Burry said that betting against Meta would mean he was “also shorting its social media/advertising dominance,” and placing a wager against Alphabet would mean he was “shorting Google Search in all its forms, Android, Waymo, etc.”
He added that being short Microsoft would be tantamount to “shorting a global office productivity SaaS goliath,” referring to the company’s software-as-a-service tools, including Word and Excel.
Those Big Tech titans aren’t “pure shorts on AI” and have staying power, Burry wrote.
“They will realize they should not be spending so much, write off assets, and possibly restate earnings,” he said. “But they still are dominant companies globally away from the AI buildout.”
On the other hand, Burry said he would short OpenAI if it were a public company. He highlighted the ChatGPT maker’s $500 billion valuation in October, which exceeds the market values of Johnson & Johnson, Bank of America, and Costco.
Burry said he owns bearish put options on Oracle, and directly shorted the database company in the last six months.
“I do not like how it is positioned or the investments it is making,” he wrote, adding that the company, cofounded by tech billionaire Larry Ellison, is making unnecessary, inexplicable moves and “ego” might be the driver.
Burry is famous for predicting and profiting from the collapse of the mid-2000s housing bubble, an episode of his career that was chronicled in the book and movie “The Big Short.”
He wrote on Substack that “technological obsolescence is on the menu as Nvidia now seems to introduce a new chip solution every year or less.”
That echoed a previous post in which he said Nvidia’s Big Tech customers were overstating the lifespan of its chips to drag out their depreciation and flatter their short-term profits, raising the prospect of future writedowns.
Burry also warned of trouble ahead, saying he’s betting against AI stocks to “have the exposure on the right side when the music stops.”
Electricity and power
Burry spoke about AI more broadly in his post, drawing a parallel between its rise and the history of electricity.
He pointed out that building power plants and grids in the late 1980s and early 1990s required “massive upfront capital outlays,” technological advances meant equipment such as transformers became quickly outdated and assets rapidly depreciated, and “cutthroat price warfare” between suppliers meant many ran into financial difficulties and were forced to merge with rivals.
“What I see in electrification is very similar to what happened during the 2000 data transmission bubble and what I see happening with the AI bubble,” he wrote.
Burry said that electricity was as transformative to the modern world as a medicine that enables a patient to walk 10 feet, whereas AI “might be the anabolic steroid that allows superhuman feats of strength and ability,” but could ultimately prove “more dangerous than anything.”
He also repeated his caution that if the US tries to win the AI race by going all-in on increasingly power-hungry chips, it will lose as China is ramping up its power-generation capacity much more quickly.
“I see a big inventory problem in the AI buildout as a result of the current power generation setup,” Burry said.
