‘The Big Short’ Warns Nvidia May Face a Bigger Downfall, AI Field 'Token Maximization' Likely Unsustainable

"The Big Short" investor Michael Burry recently warned in two Substack articles that NVIDIA's stock price has shown high fragility, and the "tokenmaxxing" trend in the AI industry is also difficult to sustain in the long term. In Monday's article, Burry said directly:

"The conditions for a radical decline in this stock have now reached the strongest levels in history."

He believes that if NVIDIA falls again, the decline is likely to exceed the previous three major drops - a 56% drop in 2018, a 67% drop in 2021, and a 43% drop in 2025.

Burry's judgment is based on option pricing, stock trading volume, and fundamentals. He pointed out that NVIDIA's current trading volume, calculated on the 50-day moving average, is at its lowest level since 1999.

At the same time, due to the relatively lower cost of buying NVIDIA put options compared to similar stocks, there is a noticeable lack of hedging activity in the market. If the stock price truly begins to decline, he expects that there will be "very sparse buyers" during the decline due to structural buying scarcity and potential retreat of market makers.

Customer concentration "ridiculously high"

In another article published last Friday, Burry described NVIDIA's customer concentration as "ridiculously high" and saw it as a major risk on the revenue side. According to the latest financial report, the proportion of the top three customers in the company's accounts receivable has risen from 56% in the previous quarter to 64%.

It is worth noting that the proportion of NVIDIA's top customer in accounts receivable has increased, but its revenue share has decreased. Burry mentioned that this is the first time in the past 13 quarters.

"This is not yet a smoking gun, but we have seen a finger on the trigger."

He proposed two possible explanations: first, Microsoft may be advancing the inclusion of inventory that is not urgently needed to ensure priority in the supply of the next generation of chips, because the pace of its data center construction is slowing down; second, NVIDIA itself may be advancing shipments to beautify financial reports.

Burry believes that either way, this demand anticipation could trigger a strong "bullwhip effect" - minor changes in demand at the customer end could cause a more intense impact on upstream suppliers like NVIDIA after passing through the supply chain.

Burry had previously publicly stated that he is shorting NVIDIA and other AI stocks that have risen sharply. He repeatedly emphasized that if the AI boom cools down, NVIDIA will be one of the most severely impacted companies.

"Tokenmaxxing" is unsustainable

On the demand side, Burry's core concern focuses on the "tokenmaxxing" phenomenon. He describes this trend as "a crazy, rushed, and temporary phase," where companies encourage employees to call AI models as much as possible through quotas, leaderboards, and strong pressure from management.

"Tokenmaxxing is not real heavy use, nor is it sustainable use. It is essentially overconsumption driven by metrics."

Burry believes that this trend cannot support the growth of the AI industry in the long term, because "almost everyone is already using AI, and many people are consuming computing power in the most expensive way."

"The market is capitalizing the most expensive phase of AI adoption and viewing it as the norm for future demand."