Nvidia is at the heart of a swelling AI bubble: Is that right?

Michael Burry, the hedge fund manager who inspired the movie The Big Short, has become a vocal skeptic of the ongoing artificial intelligence boom that’s driven Wall Street higher over the past three years. Could he have a point? 

The S&P 500 has rallied more than 66% since the launch of OpenAI’s ChatGPT generative AI large-language model on November 30, 2022, with many of Wall Street’s tech leaders embracing the technology as investors bet heavily on the sector’s biggest innovators. 

One of the biggest success stories of the AI boom has been Nvidia (NASDAQ: NVDA), which is up around 1,000% in three years. The stock has grown into the world’s most valuable, briefly surpassing $5 trillion in market capitalization at the beginning of November. 

Now, however, the outlook for the semiconductor giant and the AI landscape as a whole appears to be more clouded. Burry, who made a name for himself by shorting the US housing market in the buildup to the 2008 financial crisis, believes that Nvidia’s bubble is about to burst. 

A bigger short

Burry’s infamous ‘Big Short’ earned investors $725 million. According to recent 13F filings from his firm, Scion Asset Management, Michael Burry has held bearish put options on 1 million Nvidia shares worth around $186.6 million at the time of reporting. 

The short position held carries a strike price of $110 on Nvidia’s share price, meaning that the semiconductor firm would have to shed around 62% of its value by the end of 2026 for Scion to profit. 

Should Burry’s short come to fruition, Nvidia’s market capitalization would need to tumble $1.66 trillion in a little over a year, nearly halving its value from its early November peak. 

Given that the US GDP was measured at just over $14 trillion in 2008, a figure that’s dwarfed by the $22 trillion total market capitalization of the AI-heavy Magnificent Seven stocks on Wall Street, the raw economic hit of the artificial intelligence bubble bursting could make it a bigger short in scale for Burry than the financial crash of nearly two decades ago. 

Is AI in a bubble?

Could Burry be right about AI being in a bubble? The investor took to the social media network X to justify his outlook, indicating that the circular funding of the industry’s key players would be regarded as “a picture of fraud, not a flywheel” in the future. 

Burry’s arguments also suggest that AI ‘give and take’ deals are blurring true end-customer demand and that energy-hungry older chips operate on longer depreciation schedules that can further distort earnings for key industry players. 

With ChatGPT hitting a reported 800 million active weekly users, it’s unlikely that we’ll ever see AI disappear. But with firms like Nvidia operating at a trailing twelve-month (TTM) price-to-earnings (P/E) ratio of 44.3, it’s clear that any shortfall in expectations towards AI delivering on its potential could lead to significant strain on the value of the industry’s most popular stocks. 

It’s feasible that AI can still grow significantly while Nvidia falls to $110 as the stock fails to keep up with investor expectations in the future. 

The case for the bulls

It’s unusual to speculate over a stock losing more than 60% of its value just days after announcing blowout earnings, but Nvidia certainly isn’t your typical company. 

The results for the third quarter of its 2026 financial year rallied 62% from a year earlier and 22% from Q2, highlighting the sheer extent of the demand for Nvidia’s computer chips, which are a core component of the global AI market. 

For the quarter, GAAP and non-GAAP earnings per diluted share were both $1.30. But NVDA has continued to struggle to recapture its momentum moving into Q4, highlighting that investors aren’t convinced by the sustainability of the AI boom. 

However, what Burry may be discounting in his shorting of Nvidia is the sheer transformative potential of artificial intelligence. 

Nvidia CEO Jensen Huang announced that more than $500 billion in orders have already been placed through 2026 for the company’s latest Blackwell chips, and expectations for fourth-quarter revenue of $65 billion point to an acceleration, rather than a cooling off, of the AI boom. 

Boom or bust?

So, is AI in a bubble? And could Nvidia tumble back to a share price of $110? The runaway P/E ratios of Wall Street’s biggest artificial intelligence firms should be a far greater cause for concern than they appear to be for investors today. 

At a time when Nvidia’s value is 44.3 times higher than its earnings, it can be true that the future of artificial intelligence is bright and that leading firms like NVDA are due a correction. 

Whether Nvidia is destined to drop to $110 or not remains to be seen, but with the amount of money tied up in artificial intelligence on Wall Street, we’re looking at one of Michael Burry’s biggest shorts yet.