Mark Cuban and Michael Burry raised concerns this week about Nvidia's deep ties to the artificial intelligence industry. Both investors pointed to risks tied to Nvidia's expanding web of deals.
Cuban wrote on X that Nvidia is acting like the dot-com era's IPO market. He said the company is funding many of its own customers.
"This is so analogous to the dot com burst," Cuban wrote. He added that Nvidia is now the "ipo," financing everyone and anyone.
Cuban said one breakthrough from a rival chipmaker, or one misstep by Nvidia, could cause the AI boom to crumble. He called the situation "truly scary."
Nvidia's Web of AI Deals
Nvidia has signed deals worth hundreds of billions of dollars with companies across the AI industry. These include OpenAI, Microsoft, CoreWeave, and SK Hynix.
Cuban's worry is that Nvidia is so tied to its customers that trouble at the company could spread quickly. He believes the fallout could be wide if problems start.
Nvidia CEO Jensen Huang addressed this idea during a company meeting in November. He referenced online jokes about Nvidia holding up the AI boom and the broader economy.
"We're basically holding the planet together, and it's not untrue," Huang said at the time.
Nvidia shares traded 2% lower on Wednesday. The stock is down 18% from its peak in May.
Despite the recent drop, Nvidia stock remains up about 13-fold since the start of 2023.
Burry Points to Rising Default Swap Prices
Michael Burry shared a similar warning in a post on X. He pointed to Nvidia's five-year credit default swaps, which have roughly doubled in price over the past two months.
Burry said this rise reflects overreaching by Nvidia to keep circular spending going. He described the scale of the spending as reaching "biblical proportions."
Credit default swaps work like insurance against a company failing to pay its debts. A rising price suggests investors see more risk of default.
Burry gained fame for his bets against mortgage bonds before the 2008 financial crisis. That trade was the basis for the book and film "The Big Short."
Burry has said tech companies are overinvesting in chips and data centers that could become outdated quickly. He argues this practice stretches out depreciation to boost reported earnings.
In January, Burry said he was short Nvidia stock. He wrote that the company depends entirely on spending from a small group of large tech companies.
Burry increased his bearish position on Nvidia in a July 24 post. He said he holds put options betting the stock will fall.
He wrote that much of Nvidia's demand is financed rather than coming from direct customer purchases. He said future revenue is largely tied to circular financing arrangements.
Cuban has also raised concerns about AI infrastructure spending on a recent podcast. He said companies may be building more data centers than they actually need.
