Michael Burry, Subject of 'The Big Short,' Warns Nvidia's Circular Financing Is Creating a 'Biblical' AI Bubble

Michael Burry, the real-life inspiration behind the film 'The Big Short,' has recently issued a stark warning about Nvidia (NVDA-US), claiming the AI giant is using strategic financial overexpansion to inflate its 'circular spending' to 'biblical' proportions—making it the primary driver behind the sharp rise in Nvidia's credit default swap (CDS) risk.

Burry highlighted on the social platform X that the surging cost of insurance against Nvidia's debt default is a significant red flag. He shared a Bloomberg Terminal chart showing that Nvidia's 5-year CDS has surged nearly 90% year-to-date, insisting, 'This is not baseless speculation.'

This harsh warning strikes at the heart of Wall Street's growing concerns over the intensifying use of 'circular financing' in the AI sector. Circular financing refers to tech giants injecting capital into startups or clients, who then use that capital to repurchase the supplier's hardware. This creates a closed-loop capital flow, raising market skepticism about the authenticity of demand.

Such financial structures have drawn sharp criticism. Research firm Hammerstone Markets recently warned that these circular transactions 'are distant cousins of Ponzi schemes, requiring constant new capital inflows, relentless hype, and market-driven FOMO (fear of missing out) to sustain themselves.'

Following reports of Nvidia's major investments in SK Hynix ADRs and OpenAI, applied economics professor Steve Hanke joined the bearish camp, stating bluntly: 'Welcome to the AI bubble.'

Despite rising market skepticism, several tech executives and market strategists argue that these mutual investment relationships do not fabricate false demand but instead help bridge the massive capital gap in the AI industry.

Anthropic CEO Amodei defended the practice during The New York Times' Dealbook Summit, stating that funding buyers who lack $50 billion in upfront capital is not 'inherently improper' in principle.

James E. Thorne, Chief Market Strategist at Wellington Altus, also rejected the bubble narrative. He called comparisons to the 1990s dot-com bubble 'lazy research,' arguing that 'circular financing is a signal, not a conclusion,' reflecting a real and long-term global shortage in computing capacity.

On market performance, the Nasdaq Composite Index has declined 1.66% over the past month, with year-to-date gains now down to 7.03%. It has retreated 3.72% over the last five trading sessions. The Invesco QQQ Trust ETF, which tracks the index, closed Tuesday down 0.97% at $675.49.

Meanwhile, the Nasdaq 100 Index (NDX) has fallen from its all-time high of 30,762.20 to 27,763.14, a drop of 9.75%, nearing correction territory.

In contrast, the iShares Semiconductor ETF (SOXX-US), which tracks the semiconductor and memory industry, has still posted a year-to-date gain of 61.18%, though it has declined 16.69% over the past month. Over the past year, it has surged 99.98%.