As many focus on Thanksgiving plans, well-known investor Michael Burry – famously depicted by Christian Bale in “The Big Short” – is engaged in an increasingly assertive challenge to Nvidia’s position in the market.

This situation is particularly noteworthy because Burry potentially possesses the means to succeed in his endeavor. Unlike other cautions regarding a potential AI bubble, Burry currently commands a substantial audience and operates without the limitations of regulatory oversight, positioning him to potentially instigate the downturn he anticipates. He is taking a position against the growth of AI, while simultaneously working to convince his expanding base of followers that Nvidia is overvalued.

The central question now is whether Burry can generate sufficient skepticism to significantly impact Nvidia’s standing and, consequently, the fortunes of other key players in this narrative, such as OpenAI.

Burry has significantly intensified his efforts in recent weeks. He has publicly criticized Nvidia and engaged in a contentious exchange with Palantir CEO Alex Karp following the disclosure of Burry’s substantial bearish put options on both companies – a wager exceeding $1 billion that their values would decline. (Karp responded on CNBC, characterizing Burry’s strategy as “completely irrational,” prompting Burry to criticize Karp’s understanding of SEC filings.) This exchange highlights a fundamental debate within the market: Will AI fundamentally reshape industries, justifying the extensive investment, or are we currently experiencing a speculative mania destined for a negative outcome?

Burry’s accusations are detailed and critical. He contends that Nvidia’s stock-based compensation has resulted in a $112.5 billion loss for shareholders, effectively “halving owner’s earnings.” He also suggests that AI firms may be manipulating their financial statements by delaying the depreciation of equipment that is rapidly losing value. (Burry believes Nvidia’s customers are exaggerating the lifespan of Nvidia’s GPUs to rationalize substantial capital expenditures.)

Regarding the reported high level of customer demand, Burry proposes that it is artificial, as AI customers are “financed by their vendors” in a cyclical funding arrangement.

Burry’s increasing prominence has led to widespread discussion, prompting Nvidia, despite its strength and recent strong earnings report, to issue a response. In a seven-page memo distributed to Wall Street analysts last weekend – as initially reported by Barron’s – Nvidia refuted Burry’s claims, asserting that his calculations are inaccurate, including a miscalculation of RSU taxes (the actual buyback figure is $91 billion, not $112.5 billion, according to the memo). Nvidia also maintains that its employee compensation is in line with industry standards and firmly denies any comparison to Enron.

Burry’s reply was concise: He clarified that he did not equate Nvidia to Enron, but rather to Cisco in the late 1990s, which overinvested in infrastructure that ultimately went unused, leading to a 75% stock decline when the market recognized this.

This situation could prove insignificant by next Thanksgiving. Or it might not.

Since the beginning of 2023, Nvidia’s stock has increased twelvefold. The company’s current market capitalization stands at $4.5 trillion. Its rise to become the world’s most valuable company has been faster than any previously observed in the market.

However, Burry’s history is complex. He accurately predicted the housing crisis, gaining recognition for his insight. Yet, since 2008, he has consistently forecasted various economic downturns, earning him the label “permabear” from critics, while those who followed his advice have often missed out on significant market rallies. Burry made a timely investment in GameStop but sold his shares before the meme stock surge. He also shorted Tesla, resulting in substantial losses. Following his successful housing crisis prediction, investors withdrew funds from his firm due to prolonged underperformance.

Earlier this month, Burry dissolved his investment firm, Scion Asset Management, with the SEC. He cited “regulatory and compliance restrictions that limited his ability to communicate,” explaining his frustration with the misinterpretation of his posts on X.

Last weekend, he launched a Substack newsletter, “Cassandra Unchained,” which he is now using to present his case against the entire AI industry. The newsletter, with a yearly subscription cost of $400, is described as a platform for Burry’s “primary focus, providing a front-row seat to his analytical work and projections for stocks, markets, and bubbles, often viewed through the lens of historical patterns.”

The newsletter has quickly gained traction, attracting 90,000 subscribers in less than a week. This leads to the crucial question: Is Burry a warning signal of an unavoidable collapse, or could his reputation, track record, unrestricted voice, and growing audience actually trigger the very downturn he is predicting?

Historical precedent suggests this is plausible. Jim Chanos, a renowned short seller, did not instigate Enron’s accounting irregularities, but his prominent criticisms in 2000 and 2001 empowered other investors to question the company, accelerating its downfall. Similarly, David Einhorn’s detailed critique of Lehman Brothers’ accounting practices at a 2008 conference increased investor skepticism and potentially contributed to the loss of confidence that led to the bank’s collapse. In both instances, the underlying issues were genuine, but a credible critic with a platform fostered a crisis of confidence that became self-fulfilling.

If a sufficient number of investors heed Burry’s warnings about AI overexpansion, they will sell their holdings. This selling activity will validate his pessimistic outlook, prompting further sales. Burry does not need to be correct on every detail – he simply needs to be persuasive enough to initiate a widespread sell-off.

Examining Nvidia’s performance in November suggests that Burry’s warnings may be gaining influence; however, considering the company’s overall performance throughout the year, it is less clear that this is the case.

It is evident that Nvidia has a great deal at stake, including its substantial market capitalization and its position as the most essential company in the AI era. Conversely, Burry risks only his reputation and now possesses a new platform that he intends to utilize extensively in the coming future.