Here’s my advice to him (and you)… ͏ ͏ ͏ ͏ ͏
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Dear Reader,
Good morning,
Today I’d like to talk about Michael Burry
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He’s the guy who became famous for betting against the housing
market in 2008-09.
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He probably made $100 million from that.
He wasn’t well known.
But when the book, “The Big Short” came out, it was a big thing.
Now, he’s betting a billion dollars against the AI bubble.
That’s a risky move, but what he’s talking about is important.
My friends and I have been debating.
I want to share some of my notes and thoughts with you on this.
First, Burry is calling big tech’s AI era profits kind of a
“fraud.”
In fact, he calls it, “_one of the most common frauds of the modern
era.”_
At issue is how long a Nvidia GPU chip will last anyone who buys it.
===
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But one investment is still needed to unlock AI’s full potential.
It does NOT involve a tech company at all…
And yet, even OpenAI founder Sam Altman admits, the future of AI
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===
Does it last three years? Five years?
When tech giants like Apple, Microsoft, Oracle build these data
centers, they buy tens of billions of dollars’ worth of GPUs,
servers, cooling systems - the whole entire thing.
Normally those assets lose value fast.
But Burry has come out recently claiming that many companies have
quietly extended how long they claim those machines and GPUs last.
Companies like Meta, Oracle, Apple and Microsoft used to say these
chips last three years.
Now, they’re saying they’ll last six years.
That lets them spread out their costs so they can report fatter
earnings in the short-term.
So Burry is saying, _look - if they hadn’t done that, Meta’s
earnings would be 20% lower. Oracle’s earnings would be 26% lower._
Up until 2024, Meta, for example, claimed the chips would last three
years. They’ve moved it to five and a half.
There’s no doubt Mag 7 companies are extending their depreciation
schedules which has the effect of boosting earnings now.
So the real question now is: _how long DO the GPUs last?_
Now, Jensen Huang responded back when Michael Burry called him a
fraud.
And I get it - we live in an age when everybody’s fighting for
attention.
So if you’re Michael Burry, you use bold claims, “a fraud!”, to
really get attention. That’s just the game.
For better and for worse.
I debate this all the time.
Nvidia’s CEO, Jensen Huang responded to Michael Burry saying, _look
- our chips last that long. If you buy our chips now, they last that
long - period._
He cited examples of all the chips that have been on the market in
systems for over five years.
So he said they’re not inflating profits. They last that long.
Bottom line.
Now, this is the kind of stuff I’ve seen all my life. I am not
alarmed.
I’m a fan of Meta even if they put too much capital spending into AI
chips and infrastructure. Even if their profits are lower. I still
think some of these companies are massively undervalued.
Any time any of these companies drops below a certain price, I love
it. Meta below $500? Love it.
So Michael Burry’s been getting a lot of headlines about his
billion-dollar AI “big short.”
My advice to him is:
I saw Larry Tisch short the dot-com bubble, and add to that short and
add to that short and and lose billions of dollars.
This is not like the housing market scenario which was a massive
“affect every sector and every person in America” kind of
collapse.
This is a whole different kind of thing.
And really smart guys have gone broke going short too early in a cycle
like this one.
Is the market inflated?
Of course it is.
Will it pop?
Sure.
Are these earnings off by 10% or 20%?
You could debate that.
But is it worth a billion-dollar short against a pretty strong
economy?
The economy’s chugging along pretty nicely.
The AI trade is going higher - taking breathers here and there, of
course.
You’re making a bet against mass psychology.
It’s like predicting when a flock of birds is going to turn left.
Great people throughout history have gone broke doing just that.
I wish him the best of luck. I wish you the best of luck.
"The Buck Stops Here"
P.S. Really, in the entire “AI trade,” one investment stands out
high above all the rest…
Partly, because it is not an “AI” company at all.
But without this stock, AI could grind to a halt.
It pays an 8% annual yield and has 1,000% upside, which is just one of
the reasons I recommend it as the ultimate retirement stock.
If one were to retire on just one stock, THIS WOULD BE IT
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