Mark Cuban and Michal Burry warn the AI boom is dangerously reliant on Nvidia

Mark Cuban and Michael Burry conscionable sounded the siren connected Nvidia's sprawling web of AI deals.

Cuban struck a worried reside connected X aft different personification wrote that Nvidia, by financing its customers' purchases of its graphics chips for their information halfway buildouts, is acting arsenic a "backstop" and making itself susceptible to an AI downturn.

"This is truthful analogous to the dot com burst," the tech billionaire and erstwhile "Shark Tank" investor wrote successful a Tuesday post. "But alternatively of IPOs, Nvidia is the 'ipo,' backing everyone and anyone."

Cuban was referring to the popularity of going public during the net bubble arsenic a measurement for startups to raise rate and unafraid rich | valuations — and saying that Nvidia has replaced the banal marketplace successful that domiciled during this tech boom.

"One breakthrough successful different spot provider, aliases a misstep, and it all could crumble," he wrote connected X. "It's genuinely scary."

Nvidia has struck deals worthy hundreds of billions of dollars pinch galore players successful the AI ecosystem, including OpenAI, Microsoft, CoreWeave, and SK Hynix.

Cuban seems concerned that the chipmaker is truthful profoundly intertwined pinch its customers that if it runs into problems, the harm could dispersed acold and fast, creating achy and wide fallout.

Nvidia CEO Jensen Huang himself, speaking during a institution meeting successful November, acknowledged Nvidia's linchpin domiciled by pointing to online memes astir the institution propping up the AI boom, the banal market, and the world economy.

"We're fundamentally holding the satellite together — and it's not untrue," Huang said.

Shares of Nvidia were trading 2% little connected Wednesday, leaving them down 18% from their May peak. But they're still up astir 13-fold since the commencement of 2023.

Nvidia didn't instantly respond to a petition for remark from Business Insider.

"Biblical proportions"

Burry, the investor of "The Big Short" fame, issued a akin informing to Cuban successful a precocious Tuesday station connected X.

"There is simply a logic $NVDA's 5 twelvemonth credit default swaps are going parabolic," he wrote, attaching a floor plan showing the value of buying security against Nvidia defaulting connected its debts has astir doubled wrong the past 2 months.

"All this overreaching by #nvda to push the information spending to biblical proportions," he added, suggesting that markets are pricing successful a greater consequence of Nvidia failing to meet its financial commitments because it's overextending itself pinch excessively galore deals.

Burry's iconic "Big Short" centered connected buying in installments default swaps to stake against subprime owe bonds during the mid-2000s lodging bubble. The instruments surged successful worth erstwhile owe defaults began spiking, resulting successful a immense windfall for Burry and his clients.

Both Cuban and Burry person taken purpose astatine aspects of the AI roar successful caller weeks.

Cuban cautioned connected a podcast that companies are overbuilding AI infrastructure that will go much businesslike complete time, resulting successful excess capacity. He quipped that a batch of the buildings will beryllium converted into pickleball courts.

Similarly, Burry has said that tech giants are overinvesting successful microchips and information centers that will quickly go obsolete, dragging retired depreciation to inflate their earnings, and signing "give-and-take" deals to support fueling hype astir AI.

Burry, who pivoted from moving a hedge money to penning astir his individual portfolio past winter, wrote successful January that he was short Nvidia because it was "entirely limited connected hyperscaler spending, and I do not spot really that mathematics works."

In a July 24 post, Burry wrote that he bolstered his Nvidia short and holds bearish puts connected the banal "in bully size." He believes that overmuch of its request doesn't stem from extremity customers, overmuch of it is financed and kept disconnected its equilibrium sheet, and "future revenues are mostly financed successful a information arrangement," he wrote.