Michael Burry’s Take on Nvidia’s Scandal and Future

Michael Burry, well-known for his role in “The Big Short,” has cast doubts on the significant impact of Nvidia’s recent scandal on its business operations. Burry expresses skepticism about the long-term success of the AI chipmaker despite the scandal’s limited immediate effect.

In a recent post on Substack, Burry shared his amazement at the market’s response to the situation. Nvidia’s CEO, Jensen Huang, had confessed to an affair, which resulted in the company’s stock dropping nearly 10%, closing at about $169. This decline marks a 30% fall from its peak of around $243 on October 6, driven by concerns of AI overspending and the potential for new regulations following Democratic electoral victories.

The recent downturn has dramatically decreased Nvidia’s market value by over $1.7 trillion, surpassing the market capitalization of Meta. Although Burry does not believe the scandal will severely damage Nvidia’s business economics, he warns of possible rapid changes in the company’s competitive landscape over the next five years.

The recent controversy could prompt the U.S. government to scrutinize Nvidia’s chip trade with China and business practices. Burry condemned Nvidia’s behavior as “mafia-like,” suggesting enforcement agencies have plenty to explore if they begin probing.

Burry made it clear that he has no desire to invest in Nvidia currently, but he suspects the market may soon view this as a strategic buying opportunity. His outlook is based on Nvidia’s strong market position, which will struggle with decreasing valuation multiples and high profit margins.

Despite not holding shares, Burry has consistently bet against Nvidia. He disclosed a short position on the VanEck Semiconductor ETF due to Nvidia’s substantial presence, which he shared in an October 11 post. Additionally, on September 28, Burry revealed that he has replaced his direct short on Nvidia with bearish put options set to expire next September. Burry aims for greater leverage for betting against the AI boom, considering Nvidia heavily reliant on hyperscaler spending.

He has frequently cautioned about the ending of the AI rush, citing aggressive accounting, circular financing, concealed debts, and excessive stock-based compensation as risks. Known for anticipating the mid-2000s housing crisis, Burry shifted from his hedge fund to focusing on his personal investments in the past year.