DNQUF

Legendary investor Michael Burry said the market’s sharp turn against Nvidia Corp. (NASDAQ:NVDA) has caught him off guard. In his view, the bigger story is what the scandal surrounding CEO Jensen Huang could set in motion in Washington.

Burry weighed in on the chipmaker in a Substack post Wednesday. He wrote the news about Huang was not something he expected, and he was "a bit shocked" at how quickly investors abandoned the stock.

• NVDA stock is attempting to bounce. Get all the details here. 

Nvidia’s board launched an independent investigation into Huang’s relationship with a businesswoman who intelligence agencies say is a Chinese spy.  

The Nvidia CEO reportedly had an affair with Alice Huang, an executive at Megaspeed, an Nvidia customer. Investors reacted quickly, sending the stock sharply lower on the news. 

Regulators Could Take a Closer Look

Burry does not expect the affair itself to do much damage to the economics of Nvidia’s business. His concern lies elsewhere.

The scandal, he argued, could breathe new life into scrutiny of Nvidia’s advanced GPU trade in China and the Justice Department’s antitrust investigation. He has been suspicious of the company’s tactics for some time.

Nvidia’s "mafia-like behavior investing in and making requirements of many players in the AI space has, to me, long seemed ripe for anti-trust prosecution," Burry wrote.

Federal scrutiny of Nvidia’s dealmaking is already underway. The New York Times reported in September that the Justice Department is investigating whether Nvidia tried to skirt antitrust scrutiny of its licensing deal with AI chip startup Groq.

Burry believes enforcers would find plenty if they pushed harder. "There is a lot there if Justice and Commerce and various enforcement agencies stop ignoring and start investigating," he said.

Until recently, he could not imagine what might prompt such a shift. The Huang news changed his thinking.

"The mighty are only mighty until they have fallen. The fallen attract all manner of opportunists, both righteous and repugnant," he wrote.

No Interest in Buying the Dip

A sell-off of this size would normally excite a contrarian, Burry acknowledged. His long-running bearish thesis on Nvidia keeps him away.

"I believe Nvidia’s competitive advantage will shrink over the next five years," he wrote, adding the scandal raises the risk of the erosion happening faster.

Burry said he is not tempted to own the stock as a long-term hold. He does expect much of the market to see the drop as "a heck of a trade fairly soon," and he noted Nvidia’s dominant position will fight hard against valuation multiples sinking too low. Those multiples, he said, are still propped up by sky-high margins.

His portfolio reflects the same caution. Burry holds puts on the VanEck Semiconductor ETF (NASDAQ:SMH), the Nasdaq-100 index, Oracle Corp. (NYSE:ORCL) and Palantir Technologies Inc. (NASDAQ:PLTR), among other names.

With neocloud providers and Nvidia set to report earnings, Burry also pointed readers back to his Oct. 1 piece on GPU depreciation and the useful lives of AI chips. 

In a previous post, "Don’t Believe Your Lyin’ Eyes," he urged investors to look past headline numbers when weighing the AI spending boom, and he suggested keeping the argument in mind as the latest results roll in.

NVDA Stock Price Activity: Nvidia stock was up 3.88% at $175.44 at the time of publication Wednesday, according to Benzinga Pro market data.

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