'Strawman scarecrow burned': Burry stepped up criticism of Nvidia. Who else is in his crosshairs?

Investor Michael Burry, famous for betting against the mortgage market before the 2008 crisis, has sharply stepped up his criticism of Nvidia and revealed new details of his bets against AI companies. In a fresh letter on the chipmaker, he said he sees serious risks in the rapid obsolescence of hardware - while confirming that he holds put options on the downfall of not only Nvidia but also another Wall Street AI darling.

In a new letter titled "Unicorns and cockroaches: a blessed fraud," seen by OnInvest's editorial board, Michael Burry has stepped up his criticism of Nvidia. He responded to the company's recent note to Wall Street analysts in which it denied investor accusations of excessive stock dilution. Burry said the chipmaker's response was off-topic and aimed at allegations it did not make. The investor added that he couldn't believe such a "dishonest and disappointing" response was coming from the world's most expensive publicly traded company. He said Nvidia's letter contained "one strawman after another" instead of arguments and read "almost like a joke."

The experienced investor emphasized that he has never accused Nvidia of purposely overstating the life of its hardware in order to write it off more slowly and show higher profits. "No one is keeping track of Nvidia's own depreciation at all," he wrote. - The first stuffed animal is burnt out."

One of Burry's main concerns relates to how AI companies count the depreciation of their assets - that is, how quickly they write off the value of chips and servers. By stretching the life of equipment from three to five or six years, he says, companies can temporarily inflate profits and book value, but that risks big write-offs later. "Hyperscale companies are systematically lengthening the life of chips and servers for the sake of accounting, even though they themselves are investing hundreds of billions in equipment that is becoming obsolete at an ever-increasing rate," the investor said.

Burry also rejected Nvidia's argument that older generations of its chips are still in active use. That's not the point at all, he said: he worries that the new chips could become obsolete as early as 2026-2028. "I look ahead and see risks that are important for investors right now," he wrote. - The second straw effigy has been burned." He also recalled the words of Satya Nadella: the head of Microsoft admitted that he slowed down the construction of data centers for fear of investing in infrastructure for one generation of AI chips, which may soon become obsolete and require completely different capacities.

The investor added that he opened a short position against Nvidia.

Burry also touched on another Wall Street favorite, Palantir, a major provider of AI solutions to civilian and defense agencies. He confirmed that he still holds put options against Palantir, promising to break down the deal in more detail later. "I'm forgetting something... Oh yeah, Palantir. I'll get to it. But not now," he wrote in closing.

On Nov. 3, Burry's hedge fund Scion Asset Management (soon to be shuttered) disclosed that the investor held puts on both companies for the end of September - the day Palantir published its quarterly report, Business Insider recalls. The next day, Palantir CEO Alex Karp called Burry's bet "nuts," and the investor responded to him on social media X that he wasn't surprised Karp "couldn't figure out a simple Form 13F."

Burry later clarified that he had closed his Palantir put positions last month and was now busy with "much more interesting things" - the launch of his Substack. The previous options had a face value of $1.1 billion, but they actually cost him about $10 million each.

In trading on November 26, Nvidia shares jumped almost 3% to $182.9. However, from their high set on November 3, they fell by 14% amid investor concerns about overvaluation of AI companies. Since the beginning of the year, the company's market value has risen 34%. By comparison, the main US stock index S&P 500 has added about 16% over the same period.

Investors also ignored Burry's statements about Palantir - its securities were also up nearly 3% in Wednesday trading. They are up more than 120% since the start of 2025.

This article was AI-translated and verified by a human editor