Amidst extramarital affair scandal and Nvidia’s stock plummet, “The Big Short”: Short-term may be an “excellent trade,” but long-term remains bearish

Nvidia is mired in a CEO extramarital affair scandal, causing sustained pressure on its stock price, with market value lost now surpassing the entire market capitalization of Meta. Michael Burry, the investor widely known for shorting Nvidia, stated that the market might see this as an “excellent trading opportunity” in the short term, but he does not intend to buy or hold the stock himself and remains pessimistic about Nvidia’s long-term prospects.

Nvidia CEO Jensen Huang—in an internal email sent to employees last Sunday (November 8)—admitted to the extramarital affair. After the news broke, Nvidia’s shares had fallen nearly 10% as of the close on Tuesday. Coupled with the market’s previous concerns about overinvestment in AI and increased expectations for stricter regulation following the Democratic Party’s victory in both the House and Senate last week, Nvidia’s stock price has now dropped more than 30% from its historical high of around $243 on October 6.

According to a Business Insider report on Wednesday (November 11), Burry wrote in a Substack post on Tuesday that he was “somewhat shocked by how quickly the market turned.” He stated that, if he were not already bearish, he might be “a little excited” from a contrarian investment perspective, since he doubts “this scandal will have a major impact on the company’s economic fundamentals.” However, he also warned that the incident could accelerate the fading of Nvidia’s competitive advantage and provide an opportunity for regulatory intervention.

Burry: Scandal Could Trigger Regulatory Intervention, Accelerate Decline of Competitive Advantage

Burry pointed out in his post that the real risk of this incident does not lie in the scandal’s direct business impact, but rather in possible chain reactions it might trigger. He cautioned that this controversy is “dangerous” and may prompt the U.S. government to tighten export controls on Nvidia chips and launch investigations into the company’s business operations.

Burry described Nvidia’s investments in other AI players and related demands as “mafia-style behavior,” and said that if law enforcement “stopped ignoring and started investigating,” they would discover many questionable issues. He believes these risks could cause Nvidia’s competitive advantage to shrink faster than he previously expected within the next five years.

Although Burry admitted that the sudden shift in market sentiment might present a short-term rebound opportunity, he made it clear he would not participate. He wrote that he was not “tempted” to buy and hold Nvidia shares at this time, but “can imagine the entire market will soon view this as quite a good trade.”

He also predicted that Nvidia’s dominant market position would fiercely compete with its “still high valuation multiples,” which are supported by “persistently high profit margins.”

Burry Has Been Shorting Nvidia for a Long Time; His Long-Term Bearish Logic Has Not Changed

This is not the first time Burry has publicly expressed a bearish view on Nvidia. In a post on October 11, he disclosed that he had shorted the VanEck Semiconductor ETF, pointing out that Nvidia accounts for nearly 20% of the fund’s weight. In a post on September 28, he said he had replaced his direct short position on Nvidia with put options expiring next September with strike prices in the mid-$100 range in order to gain higher leverage.

In January this year, Burry explained his logic for shorting Nvidia: Nvidia is the “purest target” for those pessimistic about the AI boom because the company is “entirely dependent on capital spending by hyperscale cloud service providers.” He has repeatedly warned that the AI craze will end badly, listing a number of risky signals such as aggressive accounting practices, circular financing, hidden debt, overinvestment and rapid depreciation of chips and data centers, as well as excessive equity incentives.

Burry became widely known for his contrarian bet against the U.S. housing bubble in the mid-2000s, an experience chronicled in a book and adapted into the movie “The Big Short.” About a year ago, he shifted from managing a hedge fund to focusing on personal investing as a writer.