The ‘Big Short’ investor Michael Burry has long contended that AI boom will beckon the repeat of the dotcom era crash from the 1990s. However, the leading face of artificial intelligence, Nvidia, has repeatedly said otherwise. Even CEO Jensen Huang has has laid quite a few fleshed-out explanations debunking the AI bubble allegations.
The chipmaking giant has since reportedly pushed out a private memo to analysts, name-dropping the man who predicted the 2008 housing market crash in the US, according to Barron’s and CNBC.
Nvidia vs Michael Burry
In its seven-page response, Nvidia is believed to have hit out against the American investor, responding to “questions and claims we’ve received.” While doing so, the secret memo goes on to cite “Michael Burry on Twitter / X,” as it refutes the hefty allegations he has resorted to heaping onto the AI behemoth.
Burry didn’t stay quiet either. He has since counter-attacked the Jensen Huang-led company in a Substack post, which reads, “Nvidia emailed a memo to Wall Street sell side analysts to push back on my arguments on [stock-based compensation] and Depreciation … I stand by my analysis. I am not claiming Nvidia is Enron. It is clearly Cisco.”
Nvidia is the new Cisco – Michael Burry writes
Burry’s reference to Cisco points to how Nvidia is replicating the years-old capital investment cycle fuelled by the hardware supplier. In his post, he expounded that telecommunication companies unloaded massive chunks of billions of dollars to buy Cisco gear by relying on predictions that “internet traffic doubles every 100 days.”
He draws a parallel between Cisco’s position in 1999-2000 to the current scenario where many have vowed to invest nearly $3 trillion in AI infrastructure over the next three years.
The ‘Big Short’ investor added, “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.”
Nvidia particularly referred to a post Burry made last week, in which he said the company’s stock-based compensation had taken a toll on shareholder value, resulting in the reduction of “owner’s earnings by 50%.”
Directly reacting to Burry’s allegations, the supposed secretly circulated memo further stated “NVIDIA repurchased $91B shares since 2018, not $112.5B; Mr. Burry appears to have incorrectly included RSU taxes,” while alluding to Restricted Stock Units.
“Employee equity grants should not be conflated with the performance of the repurchase program. NVIDIA’s employee compensation is consistent with that of peers. Employees benefitting from a rising share price does not indicate the original equity grants were excessive at the time of issuance.”
The intensified clash between Nvidia and Michael Burry comes shortly after he shut down his own hedge fund, Scion Asset Management. He has since launched his new Substack, “Cassandra Unchained,” which offers him yet another platform to question the sustainability of the AI boom.