The real drama this Thanksgiving may be Michael Burley vs. Nvidia

While you're sweating over Thanksgiving details, famous investor Michael Burley (played by Christian Bale in The Big Short) is waging an increasingly aggressive war against Nvidia.

This is a fight worth watching because Barry might actually win. What makes this different from all the other warnings about AI bubbles is that Berry has gained an audience, freed himself from regulatory constraints, and could be the catalyst for the very collapse he predicts. He's betting against the AI ​​boom, but he's also actively trying to convince his growing number of followers that the Emperor (NVIDIA) has no clothes.

The question on everyone's mind now is whether Burry can generate enough suspicion to really cripple Nvidia and, by extension, the other protagonists in this story, including OpenAI.

Burley has been fully committed to that 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 Barry held bearish put options on both companies, betting more than $1 billion that the companies would crash. (Mr. Karp appeared on CNBC and called Mr. Barry's strategy “crazy crazy,” to which Mr. Barry responded by mocking Mr. Karp for not understanding how to read SEC filings.) This altercation encapsulates a central divide in the market: Is AI going to change everything and therefore be worth a billion investments, or are we now in mania territory that will end badly?

Berry's claims are specific and damning. He said NVIDIA's stock compensation cost shareholders $112.5 billion, effectively “reducing owner returns by 50%.” He suggested that AI companies may be making ends meet by slowing depreciation on equipment that is rapidly losing value. (Burry believes that Nvidia's customers are exaggerating the useful life of Nvidia's GPUs to justify excessive capital expenditures.) As for these customer demands, Burry essentially argues that it's a mirage because AI customers are “financed by dealers” in a circular financing scheme.

Those who started quoting Berry say NVIDIA feels forced to respond recently, despite its strength and last week's explosive earnings report. In a seven-page memo sent by Nvidia's investor relations team to Wall Street analysts over the weekend (a development first reported by Barron's), the company disputed that Barry's calculations were incorrect, including that they “incorrectly included RSU taxes.” (According to the memo, the actual buyback amount was $91 billion, not $112.5 billion.) Nvidia's employee compensation is also “in line with industry peers.” And Nvidia is definitely, absolutely, not Enron, thank you very much.

Burry's response, in a nutshell: “I didn't compare Nvidia to Enron.” I'm comparing Nvidia and Cisco from around the late 1990s. At the time, NVIDIA overbuilt infrastructure that no one actually needed at the time, and when everyone noticed, the stock price plummeted 75%.

This could look like a storm in a teapot by Thanksgiving next year. or not.

Nvidia stock has increased 12x since the beginning of 2023. The company's current market capitalization is $4.5 trillion. Its rise to becoming the world's most valuable company is faster than any company the market has ever experienced.

But Burley has a mixed track record. He created a housing crisis that brought him great acclaim. But since 2008, he's been predicting various apocalypses almost constantly, earning him the label “permabear” from critics, while those who listen to him with a sort of cult-like zeal have missed out on some of the biggest bull runs in market history. For example, Burley wisely bought GameStop early on, but sold the stake before the meme stock exploded. He lost a lot of money by selling Tesla short. After his call for a smart housing crisis, investors dissatisfied with the long period of poor performance actually fled his fund.

Earlier this month, Berry deregistered his investment company, Scion Asset Management, from the SEC. He said this was because “regulatory and compliance restrictions have effectively hindered my ability to communicate,” explaining that he was frustrated to see people misinterpreting his tweets about X.

Last weekend, he launched a Substack called “Cassandra Unchained,” which he is currently using to file lawsuits against the entire AI industrial complex. The newsletter, which costs $400 per year to subscribe to, is currently described as “Barry's exclusive focus, giving you a front row seat to his analytical efforts and predictions about stocks, markets, and bubbles, with an eye toward history and its surprisingly timeless patterns.”

People are definitely listening. The newsletter has been out for less than a week and already has 90,000 subscribers. This brings us back to the really disturbing question that hangs over all of this. Is Barry the canary in the coal mine warning of an inevitable collapse, or could his fame, his track record, now unfettered voice, and rapidly growing audience cause exactly the implosion he predicts?

History shows this isn't all that crazy. Famed 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 accelerated its unraveling. Prominent hedge fund manager David Einhorn's detailed criticism of Lehman Brothers' accounting tricks at a 2008 conference may have made other investors even more skeptical, hastening the loss of confidence that led to its collapse. In both cases, the underlying problem was real, but a trusted critic with a platform created a crisis of confidence that became self-fulfilling.

If enough investors believe in Berry's overbuilding of AI, they will sell. A sell would confirm his bearish thesis. More investors will sell. Burley doesn't have to be right about every detail. It just needs to be convincing enough to cause a huge crowd. Looking at Nvidia's November results, it's easy to conclude that Burry's warnings are here to stay. That's not all that clear when you look at the company's share price performance over the year.

What's more clear is that NVIDIA has everything to lose, including its almost mind-bogglingly large market capitalization and its position as the most essential company in the AI ​​era. Berry, on the other hand, has nothing to lose. It's a new megaphone that I'll probably be using at full volume for the time being.