Big short Michael Burry increases short position on NVIDIA: $500 billion trade criticized as "Wall Street gimmick," overshadowed by Enron scandal

Investor Michael Burry, known for accurately predicting the 2008 subprime mortgage crisis, has recently increased his short position on Nvidia. He disclosed on Substack that as of August 11, he is ramping up his short position against the chip giant, directly pointing out that this week's announcement by Wall Street of a $500 billion AI infrastructure financing deal is a "Wall Street gimmick," bearing the shadow of "Enron-style operations."

Why the $500 Billion Deal Raises Concerns

This week, Wall Street announced it would provide up to $500 billion in funding for Nvidia's customers to expand AI infrastructure. Burry views this unprecedented move as a new attempt at "financial engineering." He warns that this practice of artificially extending bull market momentum through structured credit has raised significant unease.

Burry pointed out that the current scale of off-balance-sheet liabilities dwarfs both the 2000 tech bubble and the 2008 financial crisis. He emphasized, "Structured credit is a natural part of the system, but artificially constructing unnatural credit to extend momentum in the late stages of a bull market is what is truly concerning."

Revolving Financing and "Creating Demand for Oneself"

A core risk that Burry has long focused on is the revolving financing model between Nvidia and its customers: the company provides guarantees or financing to customers, who then use these funds to purchase Nvidia chips; at the same time, Nvidia continues to support its business by holding equity in customers and providing residual value guarantees.

He wrote on X that in this $500 billion deal, Nvidia will hold about 25% equity and provide residual value guarantees for chip purchases, with the entire process filtered through private equity's private credit mechanism. Burry candidly stated, "I know exactly what this will ultimately look like."

In his view, this arrangement seems to introduce external private credit, but in reality, it further complicates the entire industry's subsidy system. Currently, the AI sector relies almost entirely on debt operations, and Nvidia is "creating demand for its products" through these means, thereby artificially inflating revenues on paper—despite the enormous future uncertainty liabilities hidden behind.

Comparison to the Enron Scandal

Burry compares the current situation to the 2001 Enron bankruptcy case. Enron once transformed commodity trading into an "investable asset class" through complex accounting maneuvers, ultimately going from a peak of $2.5 billion in daily trading to bankruptcy.

He calls on investors to revisit the history of Enron, believing that "history is repeating itself": not only is the formation of the AI bubble similar, but the accounting techniques used in these giant deals also make balance sheets appear more palatable. Burry pointed out, "There is nothing mysterious about why the revenue figures look so impressive—despite losses widening, free cash flow turning negative, and off-balance-sheet leverage exploding." Previously, some investment managers have told Bloomberg that capital is increasingly being used to fund future AI clients and infrastructure deployments, which is concerning in itself. Barry also shared relevant charts showing NVIDIA's valuation of about $5 trillion is largely tied to these cyclical AI contracts.

Potential Impact on the Market and Economy

Barry believes that these operations are not just about NVIDIA as a company, but relate to the very foundation of the entire stock market and economy. The current AI boom is heavily debt-driven, and if future earnings fall short of expectations, it could trigger a chain reaction.

He made it clear that this transaction has not alleviated previous concerns but rather complicated the issues further. In his view, the current "prosperity" is built on highly uncertain future earnings, and the accumulation of off-balance-sheet liabilities has reached a concerning level