The real drama of Thanksgiving may be between Michael Burry and Nvidia

While you were fussing over the details over Thanksgiving, celebrity investor Michael Burry — played by Christian Bale in “The Big Short” — was waging an increasingly ferocious war against Nvidia.

It’s a fight worth watching because Perry might actually win it. What makes this different from any other AI bubble warning is that Perry now has the audience and freedom from regulation to become the catalyst for the collapse he predicts. He’s betting against the AI ​​boom, but he’s also proactively trying to convince his growing number of followers that the emperor — Nvidia — has no clothes. What everyone is wondering now is whether Puri will be able to create enough doubt to derail Nvidia, and by extension, the other key figures in this story, including OpenAI.

Perry has really thrown himself into the effort in recent weeks. He’s been throwing mud at Nvidia. He also exchanged nasty comments with Palantir CEO Alex Karp after regulatory filings revealed that Burry had bearish put options on both companies — a bet worth more Billion dollars they will collapse. (Karp went on CNBC and described Perry’s strategy as “crazy“, to which Puri responded He mocks Karp For not understanding how to read an SEC filing.) The dispute sums up the central divide in the market: Will AI transform everything and thus be worth every billion investments, or are we now in mania territory that is destined to end badly?

Puri’s claims are specific and compelling. He says Nvidia’s stock-based compensation cost shareholders $112.5 billion, essentially “reducing owner profits by 50%.” He noted that AI companies are juggling their books by slowly devaluing equipment that quickly loses value. (Burry believes Nvidia customers are overestimating the useful lives of Nvidia’s GPUs in order to justify rampant capital expenditures.) As for all this customer demand, Burry basically suggested it’s a mirage because AI customers are “funded by dealers” in a circular financing scheme.

Enough people have begun citing Burry that Nvidia, despite its surprising earnings report last week, felt compelled to respond recently. In a seven-page memo sent to Wall Street analysts last weekend by Nvidia’s investor relations team – a development Reported for the first time By Barron’s – The company responded by saying that Puri’s calculations were wrong, including because he “incorrectly included repurchase unit taxes” (the real repurchase figure is $91 billion, not $112.5 billion, the memo says). Employee compensation at Nvidia is also “in line with peers.” And Nvidia is certainly not Enron, thank you very much.

Puri answerIn short: I didn’t compare Nvidia to Enron. I compare Nvidia to Cisco around the late 1990s, when they overbuilt infrastructure that no one really needed at the time and their stock fell 75% when everyone realized it.

This may all seem like a tempest in a teapot by Thanksgiving next year — or not! Nvidia stock has risen twelvefold since early 2023. The company’s market cap at this moment is $4.5 trillion. Its rise to become the world’s most valuable company is faster than anything the market has seen before. But Perry has a complicated track record. It was called the housing crisis, to much acclaim. But since 2008, he’s been predicting a different apocalypse pretty much continuously, earning him the nickname “Perpetual Bear” by pundits, while people who listen to him with a kind of cult-like devotion have missed out on some of the greatest bull runs in market history. For example, Burry smartly bought GameStop early on, but then sold his shares before the meme stock exploded. He undervalued Tesla and lost a fortune. After his smart call on the housing crisis, frustrated investors fled his fund due to prolonged poor performance.

Earlier this month, Puri deregistered his investment company, Scion Asset Management, with the Securities and Exchange Commission. This was due to “regulatory and compliance restrictions that inhibited my ability to communicate effectively,” he said, explaining that he was frustrated when he saw people misinterpreting his tweets on X.

Last weekend, he launched a subgroup called “Cassandra is unrestrained“Which he now uses to prosecute his case against the entire AI industrial complex. A description of the newsletter, for which an annual subscription costs $400, is that it is now ‘Buri’s sole focus as he gives you a front-row seat to his analytical efforts and forecasts for stocks, markets and bubbles, often with an emphasis on history and its remarkably timeless patterns.’

People are definitely listening. The newsletter launched less than a week ago and already has 90,000 subscribers. Which brings us to the truly troubling question that hangs over all of this: Does the mullet, the canary in the coal mine, portend an inevitable collapse? Or could his fame, track record, now unfettered voice, and rapidly growing audience lead to the implosion he predicts?

History suggests this is not crazy. Notorious short-seller Jim Chanos did not cause Enron’s accounting fraud, but his high-profile criticisms in 2000 and 2001 gave other investors permission to question the company and hastened its breakup. Prominent hedge fund manager David Einhorn’s detailed takedown of Lehman Brothers’ accounting tricks at a 2008 conference made other investors more skeptical and may have precipitated the loss of confidence that led to the collapse. In both cases the underlying problems were real, but a credible critic with a political platform created a crisis of confidence that became self-fulfilling.

If enough investors believe Berry about hyping up AI, they will sell. Selling will confirm the validity of his bearish thesis. More investors will sell. Perry doesn’t need to be right about every detail, he just needs to be convincing enough to provoke a stampede. Looking at Nvidia’s performance in November, it’s easy to conclude that Burry’s warnings are starting to take hold; Looking at the performance of its shares over the entire year, it’s not clear that’s the case.

What’s most obvious is that Nvidia has everything to lose, including a staggeringly huge market value and its status as the indispensable company in the age of artificial intelligence. Meanwhile, Perry has nothing to lose but his reputation and a new speaker that he’s supposed to use at full volume for the foreseeable future.