The controversy over the overvaluation of Nvidia’s stock price is nothing new. Although the PER was often strongly adjusted for being all-time high, the rally resumed as quarterly earnings exceeded market forecasts. AI-related stocks continued to rise as market leader Nvidia persisted, and the Nasdaq and S&P 500 indexes have also broken all-time highs. However, the recent controversy over the overvaluation of AI stock prices is somewhat different from the past. It was Michael Burry, a hedge fund investor known as the real person in the movie Big Short, who did a good job on Nvidia’s stock price. Burry has a lot of fandom. This is because his market perspective based on value analysis was quite accurate. Burry is a graduate of the prestigious Vanderbilt Medical School after majoring in economics and Freed at UCLA. He even majored in medicine at Stanford University Hospital. The reason he became a hedge fund manager may be because he was confident in his ability to see the market.

After establishing a reputation in investment sites in the late 1990s, he set up a hedge fund to buy credit default swaps (CDSs) of subprime mortgage bonds in 2005. CDS is a derivative to hedge against the risk of bankruptcy. CDS buyers are able to turn over bankrupt bonds and avoid losses when a default event occurs. Of course, you have to pay a premium like insurance. So, the price of the CDS premium goes up as the risk of bankruptcy increases. Burry invested in CDS, but he dipped his feet too early. He had to endure a number of bankruptcies for two years. In 2007, Bear Stearns’ MBS fund suffered a huge loss, and when the subprime crisis turned into a financial crisis, it was able to leave a $100 million profit. Since then, he has become an influential Wall Street mogul, with followers broadcasting Burry’s tweets. Burry attacked big tech for inflating profits by reducing depreciation costs by investing heavily in AI data centers and increasing their useful life. In fact, 13-F, an institutional investment report from last quarter, shows that Burry purchased Nvidia and Palantir’s put options to adjust the price decline.

Of course, it is a gray zone where it is difficult to judge whether or not accounting is adjusted. A few years ago, Google defended its profit of 1 trillion won in a similar way. If accounting was manipulated by depreciation, it would be considered a decrease in operating cash flow, but it is not. However, it is difficult to ignore the warnings that are discarded. There are many cases where various subsidiaries are established to reduce debt to non-exclusive items. A more serious problem is that Big Tech is pouring a lot of money into data centers, causing controversy over overlapping and inefficient investments. On the other hand, in China, it launched a highly efficient AI model with less investment in Moonshot. It was investors known as smart that moved the controversy first. Son Jeong-ui’s Softbank and Peter Thiel sold Nvidia. Many institutions are selling Nvidia and AI-related stocks to realize profits and raise cash. Nvidia’s performance, which will be announced tomorrow, is the top concern. The performance itself will be good. The problem is the institution’s attitude toward good performance. If you use it as an opportunity to sell a large number of stocks even in good performance, the situation becomes serious. So there is a lot of uncertainty in the market. In the end, the Fed is at the helm, and it is difficult to predict what decision to make because of its deep internal strife. If the Fed is on the back burner, the situation is likely to flow badly.