Mark Cuban and Michael Burry Warn: AI Boom Overly Reliant on Nvidia, Risks Rising

Billionaire Mark Cuban and 'The Big Short' investor Michael Burry have recently turned their attention to AI giant Nvidia.

Cuban stated on social platform X that the current situation reminds him of the dot-com bubble era, when numerous startups raised capital through IPOs and inflated their valuations.

In this AI boom, Cuban believes Nvidia is playing a role akin to a financial backstop.

He warns that if other chipmakers achieve a major breakthrough or if Nvidia (NVDA-US) itself makes strategic missteps, the entire narrative around AI investment could unravel.

Cuban's concern stems from Nvidia's recent large-scale partnerships with multiple AI-related companies, including OpenAI, Microsoft (MSFT-US), CoreWeave (CRWV-US), and SK Hynix (SKHY-US). However, these deals vary in nature—some are investments, others involve supply or procurement agreements, and some are collaboration pacts—so it's inaccurate to oversimplify and claim Nvidia is directly funding all its customers' chip purchases.

Burry echoes similar warnings. He points out that the five-year credit default swap (CDS) price for Nvidia has recently risen significantly, reflecting increased market concern over its credit risk.

Burry links this to how Nvidia is funding the expansion of its AI ecosystem, criticizing the arrangements as potentially creating a 'circular spending' phenomenon.

However, a rising CDS price does not equate to imminent default; it could also be influenced by market hedging demand, liquidity conditions, or investor sentiment.

Both investors share the view that the AI boom is becoming increasingly dependent on Nvidia.

Demand for Nvidia's chips, customer capital expenditures, data center construction, and AI company valuations are increasingly intertwined. If any one of these elements slows down, it could trigger a chain reaction across the supply chain and undermine market confidence.

Still, this remains an investor risk assessment rather than a confirmed financial crisis. Nvidia remains the core supplier in the AI chip market. While its stock price has pulled back from its peak, it is still significantly higher than at the beginning of 2023.

What the market truly needs to monitor is whether AI demand can translate into sustainable revenue, whether data center investments have outpaced actual demand, and whether the transaction structures between Nvidia and its customers could amplify pressure during an economic downturn.