Michael Burry posted criticism of circular trading in the AI industry on X on the 23rd, immediately after Alphabet announced earnings. The 'Big Short' investor shared 'short thoughts' on NVIDIA, neocloud, hyperscalers, Jevons paradox, and cost compression following news that Alphabet's free cash flow (FCF) turned negative due to massive AI investments. Burry's post extends his analysis from November when NVIDIA reported better-than-expected earnings, during which he argued that most of NVIDIA's revenue came from orders received after the company made strategic investments in its customers. NVIDIA officially refuted these allegations at the time, yet the stock declined the day after announcing strong results.
Burry Accused NVIDIA of Circular Trading in November
Burry stated on X: "In November 2025, when circular trading controversy intensified, NVIDIA refuted that the proportion of strategic investments in customers within recognized revenue was very low. I acknowledge this." However, he pointed out that "in the forward order books that are part of the '$1 trillion visibility' mentioned by Jensen, circular financial transactions are currently almost 100%."
Burry referenced Jensen Huang's '$1 trillion visibility' statement made in March at the NVIDIA GTC 2026 conference, where the CEO stated that demand for NVIDIA's AI semiconductors had become visible at over $1 trillion for next year. Burry used Bank for International Settlements (BIS) data to argue this demand figure may be exaggerated.
NVIDIA's stock closed lower the day after announcing strong earnings in November, despite beating market expectations.
BIS Data Shows Chipmaker Circular Financing Approaches 100%
The three graphs Burry shared from BIS demonstrate rising credit concerns for AI companies in financial markets. AI companies' (hyperscalers and infrastructure providers) long-term debt exceeded $300 billion, reaching the largest scale in the past decade.
Credit default swap (CDS) spreads for AI companies (rated BBB or higher) are widening. CDS is a financial derivative that transfers default risk to third parties; widening spreads indicate the market is concerned about corporate default possibilities.
Circular financing among AI companies is intensifying. According to multi-year contracts announced through April 2026, approximately $500 billion of AI labs' spending approaching $800 billion is circular financing. Over half of hyperscaler revenue exceeding $600 billion is circular financing. For semiconductor companies (chipmakers), most revenue consists of circular financing.
Burry Holds Bearish Views on Fabless, Memory, and Neocloud Sectors
Burry's analysis explains why he recently placed bearish bets on NVIDIA and the U.S. semiconductor ETF (SOXX). This signals caution regarding overvaluation of companies dependent on AI semiconductor and neocloud demand for AI data centers.
While AI optimists cite 'Jevons paradox' - the theory that falling AI token prices will explosively increase user AI demand - as supporting their outlook, Burry criticizes this scenario as overly optimistic. He emphasizes that technological advancement and corporate profits do not always move together, recently citing how electric manufacturers in the late 19th century did not benefit when electricity developed.
Burry is also skeptical about memory semiconductors. Since last February, he has consistently emphasized that Samsung Electronics should be bought below a price-to-book ratio (PBR) of 1. Samsung Electronics' recent PBR is at the 3-4 level.
Burry, famous for his short-selling strategy before the 2008 financial crisis, employs a strategy of shorting stocks receiving concentrated market attention while buying undervalued stocks neglected by the market. He recently emphasized that Hong Kong stocks are more attractive than Korean and Japanese stocks.
FAQ
What is circular trading in the AI industry that Michael Burry criticized?
Circular trading refers to a pattern where AI infrastructure companies make strategic investments in their customers, who then place orders back with those same companies. According to BIS data Burry shared, approximately $500 billion of AI labs' spending and over half of hyperscaler revenue consists of this circular financing, with chipmakers' revenue being almost entirely circular financing.
What investment positions has Michael Burry taken based on his AI skepticism?
Burry recently placed bearish bets on NVIDIA and the U.S. semiconductor ETF (SOXX). He has consistently stated since last February that Samsung Electronics should be bought below a price-to-book ratio of 1, while the current PBR is at the 3-4 level. He also emphasized that Hong Kong stocks are more attractive than Korean and Japanese stocks.
