Full Breakdown
Michael Burry's Critique of Nvidia and the AI Bubble
11/25/2025, 7:51:40 PM
Burry's Concerns Over AI Valuations
Michael Burry, renowned for his foresight during the 2008 housing market collapse, has raised alarms about a potential bubble in the artificial intelligence (AI) sector, drawing parallels to the late-1990s dot-com crash. In his inaugural Substack newsletter, "Cassandra Unchained," Burry specifically targets Nvidia, labeling the current AI boom a “glorious folly.” He argues that Nvidia, valued at approximately $5 trillion, mirrors Cisco's trajectory during the dot-com era, where Cisco's stock surged dramatically before plummeting over 80% in the early 2000s.
Burry identifies five key players in today's AI landscape—Microsoft, Google, Meta, Amazon, and Oracle—comparing them to the tech giants of the past. He asserts that Nvidia stands at the center of this bubble, akin to Cisco's role in the previous tech boom. His hedge fund, Scion Asset Management, has reportedly invested over $1 billion in put options against Nvidia and Palantir, reflecting his bearish outlook.
Circular Financing and Market Dynamics
Burry's skepticism extends to the interconnected financial relationships among AI companies. He points out that Nvidia's substantial investments in firms like OpenAI and Anthropic create a circular financing loop, which he believes could misrepresent actual market demand. Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, echoed these concerns, warning of a potential “Cisco moment” for the tech industry within the next two years.
Nvidia has responded to Burry's critiques, emphasizing its robust earnings and the longevity of its hardware. CFO Colette Kress defended the company's CUDA software, which she claims enhances the efficiency of older chips. CEO Jensen Huang dismissed bubble concerns, asserting that Nvidia's innovations are foundational for sustained growth.
Official Statements & Responses
In response to Burry's allegations regarding stock-based compensation and shareholder dilution, Nvidia circulated a memo to Wall Street analysts. The company clarified that it had repurchased $91 billion in shares since 2018, countering Burry's claim of $112.5 billion. Nvidia emphasized that its employee compensation practices align with industry standards and that its strategic investments represent a minor portion of its revenue.
Burry, however, remains steadfast in his critique, stating, “I stand by my analysis,” and indicating that he will provide a more detailed breakdown in future Substack posts. He has drawn comparisons between Nvidia's practices and historical accounting scandals, asserting that the current AI investment frenzy resembles the overbuilding seen during the dot-com era.
Criticism & Opposition
While Burry's views have garnered attention, they have also faced pushback from analysts and Nvidia itself. Some analysts have defended Nvidia's financial practices, arguing that rising Days Sales Outstanding (DSO) and inventory levels are standard for companies concentrated among a few cloud giants. Despite this, Burry's warnings resonate with a segment of investors who remain cautious about the sustainability of AI valuations.
What's Next
As the debate over Nvidia's valuation and the broader AI market continues, Burry's forthcoming analyses in "Cassandra Unchained" are highly anticipated. His insights could influence investor sentiment as the tech sector navigates potential pitfalls reminiscent of past market bubbles.
