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AI Boom or Bust? Michael Burry Warns of Nvidia Bubble, Drawing Parallels to Dot-Com Era
Michael Burry, the investor famously depicted in “The Big Short” for his foresight into the 2008 housing market collapse, is once again sounding the alarm, this time on the burgeoning Artificial Intelligence (AI) market. In a recent online post, Burry likened the current AI surge to a “glorious folly,” specifically identifying Nvidia as a potential bellwether for a looming industry bubble burst.
Burry’s concerns stem from what he terms “supply-side gluttony,” a phenomenon he believes mirrors the late 1990s dot-com crash. He argued that while “folly makes money” and fuels innovation, it also allows companies to “innovate themselves to death.”
During the dot-com boom, Burry highlighted the dominance of “highly profitable large-caps” like Microsoft, Intel, Dell, and Cisco. He sees a similar dynamic today with the “five publicly traded horsemen” of the AI boom: Microsoft, Google, Meta, Amazon, and Oracle.
Crucially, Burry pointed to Cisco as the company that epitomized the dot-com bubble’s peak and subsequent collapse. Cisco’s stock skyrocketed by 3,800% between 1995 and 2000, reaching a market capitalization of approximately $560 billion, before plummeting over 80% at the turn of the millennium.
Burry believes history is repeating itself with Nvidia. “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,” he stated, “Its name is Nvidia.”
Burry has consistently voiced his skepticism regarding the escalating valuations of AI companies, particularly Nvidia. He has questioned the longevity of Nvidia’s chips and the company’s ability to sustain demand for its products.
Earlier this month, regulatory filings revealed that Burry’s hedge fund, Scion Asset Management, acquired over $1 billion in put options on Nvidia and Palantir, a move that allows investors to profit from a decline in an asset’s price. Shortly after, Burry quietly deregistered Scion, effectively stepping away from managing external funds.
Nvidia Under the Microscope
Nvidia’s current market capitalization of roughly $5 trillion has made it the world’s most valuable company, a record reminiscent of Cisco’s position 25 years ago. This rapid ascent has also raised eyebrows among other financial experts. Lisa Shalett, Morgan Stanley Wealth Management’s chief investment officer, expressed concerns about a potential “Cisco moment” for the industry within the next two years.
Shalett highlighted a growing interconnectedness among tech companies surrounding Nvidia, suggesting a circular financing loop. For instance, Nvidia’s investments in OpenAI and Anthropic, coupled with Anthropic’s subsequent investment in Microsoft’s Nvidia-powered Azure cloud platform, create a cycle of capital moving between these entities.
Nvidia, however, remains bullish on its prospects. The company recently reported another quarter of strong earnings, with a 62% surge in revenue.
Chief Financial Officer Colette Kress countered Burry’s claims about chip longevity, asserting that Nvidia’s hardware is durable and efficient due to its CUDA software system. CEO Jensen Huang, in an interview, dismissed concerns of a bubble and circular funding, emphasizing that the company’s planned investments are a “tiny percentage” of its revenues and that the global modernization of computing to accelerated AI systems will sustain growth for “many years to come.”