Michael Burry, the investor whose controversial bet against the housing market was made famous in The Big Short, is continuing his campaign against another, perhaps even frothier target: Nvidia. Here’s why entrepreneurs outside the AI sector should still be taking note.
In a pair of Substack posts he published on May 25 and May 22, Burry argues that the computer chip giant—both a driver of and a beneficiary from the ongoing artificial intelligence boom—is displaying ominous financial indicators and, he adds, seems primed for “an aggressive fall.”
If the trajectory of the AI sector ends up looking anything like that of the 2008 financial crisis Burry successfully anticipated, it would be bad news for Nvidia, the wider tech sector, and in all likelihood, our entire economy. (Last year, as he ramped up his criticism of the company, Burry shorted Nvidia, which currently enjoys a market cap of over $5 trillion.)
Yet Burry’s criticisms also offer a slate of lessons for business owners of smaller, less hyperscaled enterprises.
Consider, for instance, Burry’s concerns with Nvidia’s consumer base.
According to Business Insider, which reviewed the celebrity investor’s pair of new blog posts, Burry has deemed Nvidia’s customer concentration “off the charts,” noting that the tech giant’s recent earnings report indicated that its three most active customers account for 64% of its accounts receivable (up from 56% the prior quarter), and that its biggest customer now accounts for more accounts receivable but less revenue for the first time in over three years.
“This is not quite a smoking gun,” Burry writes, “but more of a finding of a finger on the trigger.”
It’s a good reminder for entrepreneurs in other industries that high customer concentration can put you at risk—and, consequently, make investors suspicious. After all, having a few big “whales” may bring in a lot of money, but relying on their business too much can come back to bite you if one of them slips your grasp.
In his latest pair of warning shots across Nvidia’s bow, Burry also cites a range of factors including Nvidia’s stock trading volume (at its lowest point since the ’90s, he says), a “dearth of hedging activity” among investors, and—in the event of a sell-off—limited structural demand that would mean “very few buyers on the way down.”
Burry also singled out the recent “tokenmaxxing” trend—in which managers and executives turn AI usage into an employee productivity metric—as unsustainable and a “temporary phase.”
Yet Nvidia CEO Jensen Huang has pushed a version of the tokenmaxxing philosophy, at one point claiming that a software engineer with a $500,000 salary should be consuming at least $250,000 worth of AI module tokens every year. OpenAI CEO Sam Altman, another key AI booster, has encouraged similar maximalism.
“Tokenmaxxing is not merely heavy AI use, and it is certainly not sustainable AI use,” Burry writes. “It is quota-driven, leaderboard-driven, management-mandated overconsumption.”
The AI sector, he continues, is “capitalizing the most expensive phase of AI adoption as if it were normal and indicative of future demand.” (Nvidia did not respond to a request for comment from Insider.)
Although founders at small businesses may not directly care about Nvidia’s stock price or how the tokenmaxxing trend could be inflating it, Burry’s criticisms of this management trend are still worth considering. AI usage alone is not a 1:1 indicator of productivity, and under current AI pricing plans, it typically costs money. Implicit in Burry’s concerns is this truism: Just because someone’s using a tool a lot does not mean they’re using it well.
—By Brian Contreras, Staff Writer
This article originally appeared on Fast Company’s sister website, Inc.com.
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