Michael Burry, the investor famously known for predicting the 2008 housing market crash and being portrayed in “The Big Short,” has once again made headlines—this time for wagering a staggering $1.1 billion against some of the tech sector’s most hyped companies. According to recent regulatory filings, Burry’s investment firm, Scion Asset Management, has taken out massive put option positions targeting artificial intelligence powerhouses Nvidia and Palantir Technologies.
The move has rattled markets, particularly among AI-focused equities. On Tuesday, Palantir’s stock experienced a steep decline of up to 16% during intraday trading, eventually closing with a loss of around 8%. This sharp drop was particularly striking given that the company had just exceeded expectations with its third-quarter earnings and even upgraded its full-year forecasts. Nonetheless, investor sentiment was clearly shaken by Burry’s bearish stance.
Nvidia, another AI juggernaut and a Wall Street favorite throughout 2023, wasn’t immune either. The chipmaker saw its share price dip between 2% and 4% during the same trading session. Collectively, these losses contributed to the Nasdaq Composite suffering its most significant one-day percentage decline in nearly a month.
Burry’s decision comes amid growing concerns over inflated valuations in the tech sector, especially companies linked to artificial intelligence. Despite AI being heralded as the next major technological revolution, some analysts—Burry among them—believe the sector may be approaching bubble territory. His bet against Nvidia and Palantir underscores his skepticism about the sustainability of current market enthusiasm.
The strategy used by Burry involves put options, a form of derivative that gives the holder the right to sell a stock at a predetermined price. In essence, Burry is betting that the share prices of Nvidia and Palantir will fall. If they do, the value of his put options will increase, potentially netting his firm significant profits.
This isn’t the first time Burry has sounded the alarm on market exuberance. Over the years, he has frequently issued warnings about speculative excesses, ranging from cryptocurrencies to meme stocks. His latest bet suggests he views the current AI rally as another instance of irrational exuberance.
Palantir CEO Alex Karp responded to the market reaction in a statement, expressing frustration with what he described as “short-term thinking” in the financial community. Karp emphasized that Palantir remains focused on long-term growth and innovation, particularly in expanding the use of AI in national security and enterprise software.
Investors and analysts are now closely watching to see whether Burry’s bearish bet will prove prescient—as it did in 2008—or whether he’s underestimated the staying power of AI-driven growth. Either way, his involvement has added a new layer of volatility to an already turbulent tech market.
Beyond the immediate stock price movements, Burry’s bet has reignited a broader debate about the valuation of tech stocks in the age of artificial intelligence. While companies like Nvidia have seen explosive growth thanks to demand for AI chips, critics argue that prices have run far ahead of fundamentals.
Others counter that we’re only in the early innings of the AI era. They point to the transformative potential of machine learning, natural language processing, and robotics to revolutionize industries from healthcare to finance. In this view, companies like Nvidia and Palantir are foundational and will justify their valuations over time.
Still, Burry’s skepticism serves as a sobering reminder: even the most promising technologies can become overhyped. His contrarian approach may not be popular in bullish markets, but history has shown that he’s not easily dismissed.
In addition to Nvidia and Palantir, Burry’s filings revealed broader bearish positions across the tech sector. Though the $1.1 billion figure is headline-grabbing, it’s part of a larger portfolio strategy that appears to hedge against a potential market correction, particularly in high-growth and speculative stocks.
Some economists suggest Burry’s timing could be influenced by macroeconomic headwinds. Rising interest rates, inflationary pressures, and potential geopolitical risks all present threats to high-valuation sectors like tech. These conditions often prompt investors to reassess risk and shift towards more conservative assets.
Meanwhile, the Federal Reserve’s monetary policy remains a significant variable. If interest rates stay elevated, growth stocks—especially those with long-term earnings horizons like many AI companies—could face continued pressure. This macro context may have contributed to Burry’s decision to go short.
Retail investors, many of whom have piled into tech and AI stocks over the past year, are also watching the situation closely. The influence of institutional players like Burry can have a cascading effect, leading to increased volatility as smaller investors react to high-profile moves.
Ultimately, whether Burry’s billion-dollar short position pays off depends on a range of factors—from company performance to broader economic shifts. But one thing is clear: when Michael Burry makes a move, the market listens.