Those who bet against the AI boom – or predicted it would all collapse sooner or later – are having a good week in the markets.
First it was Nvidia (NASDAQ:NVDA), the AI darling at the heart of the boom, which has lost about a third of its stock value since its peak in early October, as CEO Jensen Huang’s career imploded in a hell of allegations involving extramarital affairs and an apparent Chinese spy.
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Dutch cloud computing giant Nebius (NASDAQ:NBIS) fell on the Nasdaq on Thursday amid news that it was lowering its revenue outlook for the year. It’s down about 17.5% on the day as of early afternoon, trading at just under $128 per share, down from about $155 at Wednesday’s close, and well below its June high of nearly $287.
The company, which operates servers and data centers and provides cloud infrastructure to other AI companies, is still waiting for some computing capacity to come online. Initially planned for the end of this year, it is now planned for the first half of 2027.
As a result, it says its revenue for the year will be on the lower end of the $3 billion to $3.4 billion expected.
Like most so-called neoclouds, Nebius has huge “capex,” or capital expenditures, spending billions now to build IT infrastructure that it hopes will be profitable later.
The company says its customer advance payments and financing on existing contracts will cover 75% to 85% of its capital expenditures next year.
Nebius reported losses of $0.13 per share. Revenue rose sevenfold from last year to $980.8 million for the quarter, beating expectations.
Burry continues to be bearish on AI
In a September article on Substack, “Big Short” investor Michael Burry called the Nasdaq, then at an all-time high, “historically overvalued and historically top-heavy,” which gave him growing confidence to increase his short positions against a few major AI stocks.
Among these shorts was Nebius. Although Burry no longer publicly discloses the size of his positions, after closing his asset management firm, he wrote in August that “Nebius is what the top of a boom looks like.” Nebius shares are now trading well below the $212 and $247 levels at which it disclosed and added to its short sale. He will benefit greatly from it.
A big part of Burry’s bearish thesis is that there will soon be “a chip glut again” as the semiconductor industry falls back into its traditional boom-then-bust cyclicality.
As Burry wrote, “over the next two years, this shortage will disappear as production catches up, and memory will once again experience a downward cycle.”
To support his argument, Burry shared an interview with Jason Chen, CEO of Taiwanese electronics manufacturer Acer. Asked if he had noticed any memory shortages, Chen said, “No way,” adding, “How could there be a continued shortage?” China’s production capacity has been constantly increasing, and there is absolutely no shortage problem.
Learn more: Vanguard reveals what’s coming for US stocks – and it could be bad news for this group of investors
Burry is not the only AI skeptic
Recent signs of weakness in the tech sector, including a disastrous quarter for Alphabet (NASDAQ: GOOGL), have lent credence to Burry’s perpetually bearish outlook. The Nasdaq plunged 5.5% and entered correction zone during the first week of November. Chip giants Micron Technology (NASDAQ:MU) and AMD (NASDAQ:AMD) suffered double-digit routs.
And there are other high-profile investors who see signs that this party is coming to an end.
For example, Business Insider reported that GMO co-founder Jeremy Grantham said that current valuations for AI stocks are “obviously a bubble” and that “the market will get a lot cheaper” once it bursts.
DoubleLine Capital founder Jeffrey Gundlach echoed this sentiment more recently in an interview on the Julia La Roche podcast. As the so-called “bond king” warned, “you’re going to have spillovers and losers in the AI race to the Holy Grail.”
Although Gundlach said he doesn’t know when the fall will come, he says it’s close enough to want to “opt out” of the AI’s actions. Instead, Gundlach recommended an equally weighted ETF tracking Fortune 500 companies to avoid excessive concentration in AI, as well as exposure to assets such as high-quality bonds, emerging market debt, gold and a commercial real estate ETF.
On the topic of “chip glut,” analyst Sujai Shivakumar of the Center for Strategic and International Studies echoed Burry’s view that “Chinese overcapacity” in the chip sector could become a major risk for companies like Micron. As Shivakumar wrote: “The expansion of Chinese DRAM and NAND production could alleviate some short-term pressures, but it could also produce surpluses, dumping, trade frictions, and a deeper reliance on Chinese suppliers for commoditized but strategically important memory devices in the future.”
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Updated with Moneywise GM Buck editor files
This article was originally published on Moneywise.com under the title: Michael Burry vindicated as Nebius shares fall more than 17% – and he warns of a coming chip glut.
This article provides information only and should not be considered advice. It is provided without warranty of any kind.
