‘Big Short’ investor Michael Burry is sounding the alarm on Nvidia Corp. (NASDAQ:NVDA), claiming the AI giant’s strategic financial “overreaching” has escalated its “circular spending” to “biblical proportions,” which he argues is driving a massive spike in the company’s credit default swap risks.
Default Swaps ‘Going Parabolic’
Taking to X, Burry pointed to a sharp rise in the cost of insuring Nvidia’s debt as a glaring warning sign. “There is a reason $NVDA’s 5 year credit default swaps are going parabolic,” Burry posted, sharing a terminal chart showing the swaps up nearly 90% year-to-date.
He attributed this sudden surge directly to “All this overreaching by #nvda to push the circular spending to biblical proportions.”
This criticism coincides with reports that Nvidia signed data center leases worth up to $50 billion in Texas to support its “neocloud” partners—a financial maneuver that skeptics argue keeps high costs off Nvidia’s balance sheet while artificially driving demand for its own GPUs.
The Circular Financing Controversy
Burry’s stark warning strikes at the heart of Wall Street’s growing unease with “circular financing” in the AI sector—a practice where a tech giant funds a startup or customer, who then uses that capital to purchase the supplier’s hardware.
The financial architecture has drawn harsh rebukes. Hammerstone Markets recently cautioned that these circular deals, “like their cousin the Ponzi scheme, require constant activity in the way of new funds, continuous hype, and the stoking of FOMO.”
Following reports of massive Nvidia investments in entities like SK Hynix Inc. ADR (NASDAQ:SKHY) and OpenAI, Applied Economics Professor Steve Hanke echoed the bearish sentiment, definitively declaring: “WELCOME TO THE AI BUBBLE.”
A ‘Signal, Not a Verdict’
Despite mounting skepticism, tech executives and some market strategists maintain that these interconnected deals solve genuine capital bottlenecks rather than manufacture fake demand.
Anthropic CEO Dario Amodei has previously defended the capital structure at the New York Times Dealbook Summit, stating that funding buyers who lack $50 billion upfront is not “inappropriate” in principle.
Likewise, James E. Thorne, Chief Market Strategist at Wellington Altus, pushed back against the bubble narrative. Dismissing comparisons to the 1990s dot-com crash as “lazy research,” Thorne argued that “Circular financing is a signal, not a verdict,” driven by very real and persistent global shortages in computing power.
How Has Tech Sector Performed?
While the Nasdaq Composite Index has slipped 1.66% over the past month, it was up just 7.03% year-to-date and down 3.72% over the last five sessions. The ETF tracking the index, Invesco QQQ Trust (NASDAQ:QQQ), closed 0.97% lower at $675.49 on Tuesday.
Meanwhile, the Nasdaq 100 index neared the correction zone as it fell 9.75% to 27,763.14points from its previous record of 30,762.20 points.
When compared with the U.S.-based semiconductor and memory ETFs, iShares Semiconductor ETF (NASDAQ:SOXX) was up 61.18% year-to-date, lower by 16.69% over the month and 99.98% higher over the year.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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