Michael Burry's Nvidia Warning Doesn't Go Far Enough

It is so much worse than you might think.

Photo by FlyD on Unsplash

In their latest memo to Wall Street, Nvidia name-checked Michael Burry of “Big Short” fame to contradict his AI bubble analysis and to assure the public that “they aren’t Enron.”Let’s be clear, if a multi-trillion dollar company has to address a single financial analyst by name and publicly state they aren’t Enron, that is one of the best ways to make everyone think you are the new Enron. Burry replied to this rather funny clap-back in a Substack article, pointing out that Nvidia isn’t like Enron at all but instead resembles Cisco. This is an unbelievably poignant and damning comparison. It cuts through all the bullshit and highlights the rot at the core of the AI bubble. However, I don’t believe his warning went far enough, because Nvidia has the potential to be far worse than Cisco.

Cisco & The Dot-Com Bubble

Okay, so what happened to Cisco?

Well, it was possibly the biggest loser in the dot-com bubble.

Most people focus on the unprofitable internet startups with artificial or inflated demand, like pets.com, when they talk about the dot-com bubble. But, arguably, Cisco is far more important. They were a wildly profitable and dominant provider of networking hardware. Throughout the ’90s, investors speculated that the internet could be an economic game-changer and tried to capitalise on it early, causing demand for such infrastructure to skyrocket. By 2000, between 70% and 80% of all the fibre optic cables and switchboards that made up the internet were built by Cisco. This drove profits and speculation wild, pushing Cisco’s valuation to $500 billion by March 2000, making it the most valuable company on the planet at the time.

The AI bubble mirrors this almost perfectly.

This time, AI startups like OpenAI are wildly unprofitable due to artificial and inflated demand. And this time, the infrastructure they are driving demand for isn’t Cisco’s networking but Nvidia’s AI datacentres. Like Cisco was in the ’90s, Nvidia is a mature and highly profitable company that dominates this space. Nvidia controls between 80% and 90% of the AI chip market. Hell, like Cisco once was, Nvidia is now the world’s most valuable company, with a peak valuation of $5 trillion in October 2025!

Okay, so why is that a problem?

Well, it didn’t exactly end well for Cisco.

The dot-com bubble burst. Investors realised that internet businesses like pets.com were little more than speculative ventures with functionally no customer demand. Then, interest rates went up to avoid a recession, drying up the capital these unprofitable companies needed to operate, causing a tsunami of internet bankruptcies. This proved that the hypothesised demand that fuelled this boom and speculation simply wasn’t there yet, causing investors to sell up in droves, which crashed prices.

But Cisco had supplied far too much infrastructure trying to meet this mythical demand, and much of the fibre-optic cable it had laid over the past decade remained unused for years. This unused infrastructure became known as “dark fibre”, and it was a major problem. In fact, dark fibre made up over 60% of the US’s fibre optic network in 2007.

As such, demand for new fibre optics dropped by around 70%. This cut Cisco’s revenue by over 15%, but it also destroyed any speculative value, causing its stock price to collapse by 88%! In other words, it lost more stock value than any other dot-com company. To give you an idea, Cisco lost three times more stock value during the dot-com crash than Amazon did.

Like Cisco, the infrastructure demand Nvidia is meeting isn’t real but artificial and speculative. I have written about this topic extensively, so if you want to learn more, feel free to read my back catalogue. But, if you need convincing, then don’t forget that AI improvement has ground to a halt, only 5% of OpenAI users pay for the service, and that 75% of OpenAI’s income comes from corporate companies (according to Bloomberg), despite the fact that over 95% of AI pilots using these products failed to make any noticeable gains (according to MIT). Let’s also not forget that the companies buying Nvidia’s AI chips are all wildly unprofitable AI or AI data centre companies running on nothing but debt.

Nvidia is a modern-day Cisco. The demand they are meeting is non-existent, and they are creating a huge supply-side glut that will bite them in the arse very soon. Burry is exactly right.

Or is he? Because, when you look at the details, Nvidia will face far, far worse problems than Cisco ever did!