Investor Michael Burry, who became famous for "The Big Short," posted on Substack on Tuesday, saying he was "a bit shocked by how quickly the market has turned towards this company."
Earlier reports stated that Jensen Huang, the CEO of NVIDIA, admitted to having an extramarital affair in an email sent to employees on Sunday, after being closely associated with a person suspected to be a Chinese spy.
This round of stock price declines has caused NVIDIA's market value to evaporate by over $1.7 trillion in just over a month, a figure that exceeds the total market value of Meta.
Burry stated that if he weren't bearish on NVIDIA, as a contrarian investor, he might be "a bit excited" because he suspects that this "scandal won't cause significant harm to the business's economic efficiency."
However, he warned that NVIDIA's competitive advantage could shrink more quickly than he anticipated over the next five years. He pointed out that the latest controversy is "dangerous" in the sense that it could prompt the U.S. government to take action against NVIDIA's chips in trade with China and to investigate the company's business practices.
Burry described NVIDIA's investments in other AI participants and their demands as "mafioso-style behavior," and claimed that if law enforcement agencies "stop ignoring it and begin to investigate," they would find many things that are worthy of question.
He wrote that he currently has “no interest” in buying and holding NVIDIA stocks, but “it is conceivable that the entire market will soon consider this to be a quite good deal.”
He predicts that NVIDIA's dominant market position will “vigorously resist” a decline in valuation multiples, which are “already too low after still being driven up by excessively high profit margins.”
NVIDIA did not immediately respond to the request for comment from Business Insider.
The company's stock price rose by about 4% in pre-market trading on Wednesday.
Long-term betting
Burry has long been publicly short-selling NVIDIA. On October 11, he posted that he was short-selling VanEck semiconductor ETF, and pointed out that NVIDIA accounts for nearly 20% of that fund.
In a post on September 28th, Berry stated that he had switched from directly short-selling NVIDIA to exercising put options with a strike price in the mid-100s of dollars and an expiration date in September next year, in order to achieve higher leverage.
In January, he explained that his short position in NVIDIA was due to the fact that for those who are bearish on AI, this company “is the purest target” because it “relies entirely on the spending of ultra-large-scale cloud service providers.”
Burry has repeatedly warned that the AI craze will ultimately end in a bad way. He mentioned radical accounting practices, circular financing, hidden debts, overinvestment in microchips and data centers that will soon become obsolete, as well as excessively high equity-based compensation, considering these all to be dangerous signs.
This value investor is best known for his contrarian bet against the U.S. real estate bubble in the mid-2000s, a story that was documented in the book "The Big Short" and adapted into a film. About a year ago, he shifted from managing a hedge fund to writing about his personal investment perspectives.
