‘There is a Cisco’: Michael Burry’s Investment Strategy Against Nvidia and Palantir

Michael Burry, the renowned investor known for his successful bet against the U.S. housing market in “The Big Short,” has turned his attention to shorting Nvidia and Palantir, two prominent players in the artificial intelligence (AI) sector. In a recent post on Substack, Burry criticized Nvidia’s internal response to his concerns as “disingenuous” and accused the company of sidestepping critical issues regarding depreciation assumptions in the AI ecosystem. His remarks come amid growing investor skepticism about whether the AI boom has entered a speculative bubble, raising questions about the sustainability of profits in the tech industry.

Investor Concerns Over AI Valuations

Burry’s criticisms arrive at a pivotal time for Nvidia, which has seen its stock price decline by 14% since reaching a peak in early November. As discussions intensify around the potential for an AI bubble, Burry’s comments reflect a broader unease among investors. They are not questioning the innovation itself but are concerned about how companies are managing their accounting practices. Burry argues that these practices could lead to inflated earnings that may not hold up as the technology landscape evolves and chip cycles shorten. His insights resonate with investors who are increasingly wary of the sustainability of the current AI-driven market rally.

Burry’s Focus on Depreciation Practices

In his critique, Burry clarified that his concerns are not directed at Nvidia’s own depreciation practices but rather at the cloud giants that utilize Nvidia’s technology. He pointed out that companies like Microsoft, Meta, and Oracle are reportedly extending the depreciation timelines for their chips and servers from three years to five or six years. This strategy allows them to spread the significant costs of AI hardware over a longer period, which can artificially inflate current earnings while deferring losses. Burry highlighted a statement from Microsoft CEO Satya Nadella, who mentioned that the company had slowed down data center expansions to avoid overcommitting to a single generation of AI chips. This, according to Burry, indicates a disconnect between the depreciation timelines and the actual market realities.

Comparisons to the Dot-Com Bubble

Burry has drawn parallels between the current AI surge and the dot-com bubble of the late 1990s, suggesting that the rapid rise in valuations is accompanied by unrealistic expectations and significant accounting risks. He likened Nvidia to Cisco during the tech boom, suggesting that it stands at the center of the current euphoria. Burry warned that if companies do not adjust their depreciation timelines, they could collectively understate depreciation by as much as $176 billion between 2026 and 2028. This misalignment could lead to overstated earnings by 20% to 27% for major tech firms, raising alarms about the long-term viability of their financial health.

Nvidia’s Response and Burry’s Position

In response to Burry’s assertions, Nvidia disputed his calculations, particularly regarding its stock buybacks. The company clarified that it has repurchased $91 billion in shares since 2018, countering Burry’s claim of $112.5 billion. Nvidia also defended the longevity of its GPUs, asserting that chips like the A100, released in 2020, remain in active use, justifying longer depreciation periods. Despite Nvidia’s rebuttal, Burry remains steadfast in his analysis, stating on social media that his full assessment cannot be encapsulated in a single tweet. He continues to hold put options on both Nvidia and Palantir, which he claims cost about $10 million each, emphasizing that the current AI cycle involves more than just technological advancements; it also encompasses the accounting frameworks that support them.

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