Two investment giants warn: "The entire market depends on just one company"
Mark Cuban and Michael Burry, two prominent investors, issued nearly identical warnings hours apart: the entire AI bubble relies on a single company. If it falters, the impact will reach investment and pension portfolios. Here is what triggered their concerns.
Two highly recognized investors, Mark Cuban and Michael Burry, sharply criticized this week the way the artificial intelligence bubble has been built, both pointing to the same concern: almost all market growth is tied to one company — chip manufacturer Nvidia.
Cuban, the billionaire investor and entrepreneur, wrote on X that the situation reminds him of the dot-com bubble burst in the early 2000s. However, this time, according to him, the role once played by the IPO market on the stock exchange has shifted to Nvidia itself.
Instead of companies issuing shares to raise capital, Nvidia is the one providing funding to almost every player in the field, thereby becoming the pillar of the entire chain. "A breakthrough by a competitor, or one mistake, and this whole thing could collapse," he wrote, adding that it is simply "scary."
The background for these concerns is a massive network of deals that Nvidia has woven over the past year, totaling hundreds of billions of dollars, with names like OpenAI, Microsoft, CoreWeave, and SK Hynix. Some of the deals are structured in such a way that Nvidia effectively finances the customers who buy chips from it for their data centers.
Simply put: the company sells, but also provides the money that enables the purchase. Such a structure creates deep interdependence, and when the links are so intertwined, a stumble by one of them could quickly roll over to all the others.
Michael Burry, the investor who became famous for his winning bet against the mortgage market in 2008 and became the hero of the movie "The Big Short," attacked from a different angle. He drew attention to the fact that the cost of insurance against Nvidia's default, known as CDS contracts, has almost doubled in two months.
In his view, this is a sign that the market itself is starting to price in a higher risk that the company will not meet all the financial obligations it has taken upon itself. Burry even revealed that he holds a significant short position against the stock, believing that a significant portion of the demand does not come from real end customers but is financed in a closed loop.
Interestingly, Nvidia CEO Jensen Huang does not really disagree with the strength of this dependence. In an internal discussion at the company, he addressed memes on the web that describe the company as holding the entire AI economy on its shoulders, and said with a half-smile that it is "not far from the truth."
And this is where the interest of the Israeli saver comes in. Nvidia stock has become one of the largest holdings in the world's leading stock indices, primarily the S&P 500 and the Nasdaq. Anyone who holds an index tracking fund, a training fund (Keren Hishtalmut), or pension savings with exposure to foreign stocks, almost certainly holds a significant portion of this company, usually without noticing. That is, even investors who have never bought a single share are exposed to its fluctuations through long-term savings.
It is important to keep things in perspective. These are the assessments of two investors, even if they are well-known, and not a certain forecast. Nvidia stock has indeed fallen about 18% from its May peak, but it has still recorded a 13-fold increase since the beginning of 2023, a figure that illustrates how much the market still believes in the story. The real question is not whether the bubble will burst tomorrow, but how much the saver's savings are concentrated around one name, and whether the diversification in the portfolio is truly as broad as they assume.
