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Michael Burry is betting against two of tech's biggest AI darlings. His hedge fund Scion Asset Management disclosed Monday it has taken positions against Nvidia and Palantir.
Burry bought puts on both stocks - options that profit when share prices fall. For someone who correctly predicted the 2008 housing crash, this move carries weight.
Palantir shares dropped as much as 7% early Tuesday despite beating earnings estimates and raising guidance. Nvidia fell over 2% in early trading before recovering some losses.
Burry rose to fame for correctly predicting the US housing bubble would burst ahead of the 2008 financial crisis. Michael Lewis' 2010 book "The Big Short" memorialized his prescient call. Christian Bale portrayed him in the 2015 film.
Today, Scion Asset Management manages roughly $155 million according to latest regulatory filings. That's small compared to major hedge funds, but Burry's track record means people pay attention to his moves.
Burry jumped into the AI bubble debate last month with a cryptic post on X.
"Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play," Burry wrote in late October. He included a screengrab of Christian Bale playing him in "The Big Short."
His X username is "Princess Cassandra" - a reference to the Greek mythology figure who predicted the fall of Troy but wasn't believed.
The tech-heavy Nasdaq has gained over 20% this year as AI stock valuations soared. Burry clearly thinks things have gone too far.
Burry's disclosure comes as questions mount about AI valuations. Palantir trades at extreme multiples despite strong revenue growth. Nvidia's stock has had a massive run on AI chip demand.
President Trump said Sunday the US won't allow Nvidia to sell top chips to China for national security reasons. That added pressure on Nvidia shares Tuesday.
Palantir beating estimates but falling 7% shows how stretched valuations have become. Even strong results can't satisfy sky-high expectations.
Burry is a contrarian investor. When he takes high-profile short positions, it signals concern about market excesses.
His 2008 housing short made him legendary. Not all his calls work out, but his track record means investors take notice when he bets against popular stocks.
Shorting Palantir and Nvidia - two of the hottest AI stocks - suggests Burry thinks the AI boom has created a bubble. These companies have seen their valuations explode as investors piled in expecting transformative AI profits.
Shorting stocks is risky. Losses can be unlimited if shares keep rising. Timing matters enormously - being right eventually doesn't help if the position bleeds money first.
Nvidia reports earnings Nov. 19. If results are strong, Burry's puts could get crushed. Palantir just raised guidance, showing business momentum continues despite valuation concerns.
Both companies have genuine businesses with real revenue and profits. This isn't like shorting fraudulent subprime mortgages in 2007. Burry is betting on valuation correction, not business collapse.
Michael Burry betting against Palantir and Nvidia adds fuel to the AI bubble debate.
When the investor famous for predicting the last major bubble takes short positions against two AI leaders, it's worth paying attention. His "sometimes the only winning move is not to play" comment suggests he sees current valuations as dangerously inflated.
But Burry's track record isn't perfect. He's made successful calls and unsuccessful ones since 2008. Being contrarian works great when you're right about the turn, but can be costly if the rally continues.
Palantir falling 7% despite beating estimates shows the market is nervous about valuations. Nvidia dropping 2% ahead of earnings suggests similar concerns. Both stocks have had massive runs - Palantir up 170% this year alone.
Whether Burry's shorts pay off depends on when - or if - AI valuations correct. If these companies keep delivering strong results and growing revenue, even expensive stocks can eventually grow into their valuations.
But if AI adoption disappoints or growth slows, the correction could be severe. That's the bet Burry is making.
His Princess Cassandra username is telling. Cassandra was right about Troy but nobody believed her until it was too late. Burry sees himself as warning about a bubble that others refuse to acknowledge.
Time will tell if he's right again, or if AI really is different this time.
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