Enough crypto already! Back to AI … 
I for one am fascinated by the current narrative battles around Nvidia and AI (and Google).
Michael Burry – who cried wolf lots of times, admittedly – apparently posted his views on Nvidia on Substack a couple of days ago (Cassandra Unchained, paywalled). Ok, fine. Summary according to Gemini in points 1 and 2 in the footnote.[1]
Nvidia apparently feels like they have to respond by sending a private memo to Wall Street sell side analysts … wait, what? Why respond at all? Anyway, their rebuttal is summarized in point 3 in the footnote.[1]
Michael Burry tweet responds again.
Another nice account of the narrative battles, summarized by Gemini:
The author argues that despite being the world’s most valuable company, NVIDIA had to issue a rebuttal to short-sellers like Michael Burry because the sustainability of its 75% gross margins is fragile.
The reasons include:
- Customer Dependency: NVIDIA’s largest customers are unprofitable and rely on fickle investor capital to fund their massive hardware purchases.
- Uncertain Value Capture: It is unclear who will capture the massive value spread (e.g., 99.9% cost reduction in an MRI scan) created by AI—the chip maker, the model maker, or the end application.
- The Real Rival: NVIDIA’s true competitor is Google, which controls the entire AI stack (TPUs, Gemini, data, and distribution) and is strategically focused on driving down costs, directly conflicting with NVIDIA’s strategy of maintaining high margins.
The text concludes that the current unit economics suggest AI may evolve into a commodity business where low cost ultimately wins, intensifying the conflict between the two giants’ strategies.
(Full Tweet)
1 Gemini’s summary:
Michael Burry’s recent post on his Substack newsletter, “Cassandra Unchained,” is a powerful critique of the current AI boom, arguing that NVIDIA is the “Cisco” of this cycle and that the rally is being inflated by aggressive accounting practices, particularly among NVIDIA’s major cloud customers.
Here is a summary of the key points from his post:
1. NVIDIA is the New Cisco
Burry draws a direct parallel between NVIDIA’s position today and Cisco’s position at the peak of the dot-com bubble (1999–2000).2 Cisco sold the hardware (“picks and shovels”) for the internet infrastructure buildout, which turned out to be catastrophic supply-side gluttony that far outpaced real demand. He suggests the massive investment promises in AI infrastructure today ($3 trillion over the next few years) mirror that same overbuilding.
2. The Core Accounting Trick: Depreciation
Burry’s central argument is not about NVIDIA’s own financial fraud, but rather the accounting methods of its customers (the “hyperscalers” like Microsoft, Meta, and Oracle).
- The Allegation: These cloud giants are systematically extending the useful life of AI chips >and servers for depreciation purposes from the traditional 3 years to 5 or 6 years.
- The Impact: Since depreciation is a cost spread over time, extending the timeline artificially boosts current reported earnings for these customers, masking the true, massive cost of the AI hardware.6 Burry warned that companies could be overstating earnings by 20–27% if these depreciation timelines are out of sync with the rapid pace of chip cycles.
3. Rebuttal and Counter-Attack
NVIDIA reportedly sent a memo to Wall Street analysts to push back on Burry’s public criticisms. In his Substack, Burry dismissed NVIDIA’s memo as “disingenuous” and attacking “straw men,” arguing that NVIDIA was deflecting criticism away from his actual concerns about customer depreciation.
4. Continued Bearish Stance
Burry reaffirmed that he stands by his analysis and disclosed that he still holds put options (a bearish bet) on both NVIDIA and Palantir. He is now using his paid newsletter to argue that this AI cycle is propped up by financial and accounting scaffolding that will not age well.
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