Michael Burry says he's still bearish after Nvidia's 10% plunge — but the market may see it as a 'heck of a trade' soon

• Michael Burry says he's "a bit shocked" by Nvidia stock dropping nearly 10% in two days.
• The sell-off was sparked by CEO Jensen Huang's affair scandal, which emerged earlier this week.
• Burry said he's still bearish on Nvidia, but the market could think it's a "heck of a trade" soon.

Michael Burry says Nvidia stock could bounce back from its latest scandal, but he's still bearish on the AI chipmaker's longer-term prospects.

The investor of "The Big Short" fame said in a Substack post on Tuesday that he was "a bit shocked at how the market has turned on the company."

In a Sunday email to employees, Nvidia CEO Jensen Huang admitted to having an affair following reports of his close relationship with a suspected Chinese spy.

Since that revelation, Nvidia stock has fallen by nearly 10% to about $169 a share as of Tuesday's close. It has plunged by over 30% from its all-time high of around $243 on October 6, fueled by concerns of excessive AI spending and fears of stricter regulations after Democrats won control of the House and Senate last week.

The stock-price decline has tanked Nvidia's market capitalization by over $1.7 trillion in just over a month, a figure that exceeds Meta's entire market value.

Burry said that if he wasn't bearish on Nvidia, he might be feeling a "little pumped" as a contrarian investor, as he doubts the "scandal will hurt the economics of the business tremendously."

But he warned Nvidia's competitive advantage could now shrink more quickly over the next five years than he expected. He pointed to the "danger" that this latest controversy could lead the US government to crack down on the trade of Nvidia chips in China and investigate the company's business practices.

Burry described Nvidia's investments in and demands of other AI players as "mafia-like behavior," and said enforcement agencies would find plenty to question if they "stop ignoring and start investigating."

He wrote that he's not "tempted" to buy and hold Nvidia stock at this point, but could "imagine the whole market is going to think this is a heck of a trade fairly soon."

He predicted that Nvidia's dominant market position would "battle mightily" against "valuation multiples, still hopped up on sky-high margins, getting too low."

Nvidia did not immediately respond to a request for comment from Business Insider.

The company's stock rallied by about 4% in premarket trading on Wednesday.

Playing the long game

Burry has been publicly betting against Nvidia for a while. He said in an October 11 post that he'd shorted the VanEck Semiconductor ETF, noting Nvidia was nearly 20% of the fund.

In a September 28 post, Burry said that he'd replaced his outright short on Nvidia with bearish put options struck in the mid-$100s and expiring next September, as he wanted more leverage.

He explained in January that he was shorting Nvidia because it was "simply the purest play" for someone negative on the AI boom, as the company was "entirely dependent on hyperscaler spending."

Burry has repeatedly warned the AI rush will end badly. He's pointed to aggressive accounting, circular financing, hidden debts, overinvestment in microchips and data centers that quickly become obsolete, and excessive stock-based compensation as red flags.

The value investor is best known for his contrarian bet against the mid-2000s housing bubble, which was immortalized in the book and movie "The Big Short." He pivoted from running a hedge fund to writing about his personal investments around a year ago.