Michael Burry Warns ‘Abnormal’ Credit Structures Are Spreading in AI Investment Boom

Investor Michael Burry, known for predicting the 2008 global financial crisis, warned that abnormal credit structures are spreading across the artificial intelligence investment market.

In a post on Aug. 13, Burry said he was concerned that Nvidia and major global financial firms were using abnormal credit structures to extend late-stage bull-market momentum through a large AI infrastructure financing effort.

Nvidia is pursuing an AI infrastructure financing platform worth about $500 billion with Goldman Sachs, Brookfield, BlackRock, Blackstone, Apollo and KKR. The model supports infrastructure investment by supplying funding or AI chips to data-center operators and AI startups.

The market has raised concerns that credit risk could grow if enthusiasm for AI chips fades, because the semiconductors are effectively serving as collateral. Delays in data-center construction or project cancellations could hinder loan recovery. The release of next-generation chips could also rapidly erode the value of existing products.

Nvidia Chief Executive Officer Jensen Huang has said demand for AI chips is strong enough that the company could secure new customers even if a specific client defaults. He also suggested guaranteeing part of the residual value of older chips to address the risk of price declines.

Similar concerns about overheating AI investment are emerging inside the Federal Reserve. Beth Hammack, president of the Federal Reserve Bank of Cleveland, said on Aug. 13 that debt-funded AI infrastructure investment by companies could add to inflation pressures and again emphasized the need for higher interest rates.

Burry said credit structuring itself is a natural part of the financial system. He added that investors should be cautious when complex credit structures are used to prolong gains in an overheated market.