Michael Burry, the investor known for his successful bet against the housing market chronicled in "The Big Short," has placed a substantial wager against the booming artificial intelligence sector. New regulatory filings reveal his firm, Scion Asset Management, has acquired significant put options against semiconductor powerhouse Nvidia and data analytics firm Palantir.
These positions, which profit if the stocks' prices fall, represent a major challenge to the market's prevailing optimism surrounding AI technology. The move signals Burry's skepticism about the sustainability of the current rally that has propelled tech valuations to record heights.
Key Takeaways
- Michael Burry's Scion Asset Management has taken large short positions on Nvidia and Palantir using put options.
- These bearish bets constitute a significant portion of Scion's portfolio, indicating high conviction.
- The move comes after both Nvidia and Palantir experienced massive stock price increases over the past year, fueled by AI enthusiasm.
- Burry has publicly expressed concerns about a potential bubble in the AI sector, highlighting what he calls "circular capex."
A Contrarian Stance on the AI Boom
Recent filings with the U.S. Securities and Exchange Commission (SEC) provide a window into Scion Asset Management's latest strategy. The documents show the firm has purchased put options targeting two of the most prominent names in the AI industry. While the exact strike prices and expiration dates are not disclosed, the scale of the investment is clear.
The short positions on Nvidia and Palantir now account for approximately 80% of Scion's reported portfolio. This level of concentration underscores a strong belief that the market's current valuation of these companies is unsustainable. Put options give the holder the right to sell a stock at a predetermined price, making them a popular tool for investors anticipating a decline.
This bet places Burry directly at odds with the widespread market sentiment that has driven the AI sector's incredible growth. Nvidia, a critical manufacturer of AI chips, has seen its stock gain 48% over the last 12 months. Palantir, an AI-focused software company, has surged an even more dramatic 305% in the same period.
What is a Short Position?
A short position is an investment strategy that profits from a decrease in a security's price. By purchasing put options, an investor like Burry secures the right to sell shares at a specific price in the future. If the market price drops below that specific price, the investor can buy the shares at the lower price and sell them at the higher, locked-in price, realizing a profit.
Questioning Valuations and Market Hype
Burry's move appears rooted in a fundamental skepticism about the AI frenzy. In a recent social media post, he pointed to the sector's "circular capex," a term suggesting that companies are spending heavily on AI infrastructure primarily to sell AI services back to each other, creating a self-fueling but potentially hollow cycle of investment.
The valuation of companies like Palantir has been a point of concern for many analysts. Prior to its latest earnings report, the software group was trading at a price-to-earnings multiple of over 300 for its projected 2025 earnings, according to data from FactSet. Such a high multiple indicates that investors have extremely high expectations for future growth, leaving little room for error.
Despite Palantir reporting better-than-expected financial results, its stock experienced a slight downturn in pre-market trading following the announcement. This reaction could suggest that even strong performance is not enough to satisfy the market's lofty expectations, potentially validating some of Burry's concerns.
Palantir's Meteoric Rise: The AI software company's stock has increased by over 300% in the past year, making it a primary symbol of the market's enthusiasm for artificial intelligence.
A Long-Term Strategy?
Market observers have noted significant recent trading activity in long-dated, out-of-the-money put options on these stocks, with some contracts expiring as far out as 2026. While it's impossible to confirm these specific trades belong to Scion, such a timeline would align with Burry's historical approach.
During the lead-up to the 2008 financial crisis, Burry maintained his short positions against the subprime mortgage market for an extended period, enduring initial losses before the market eventually turned in his favor. This patience and conviction in his analysis are hallmarks of his investment style. By potentially using long-dated options, he gives his thesis ample time to play out.
"Sometimes, the only winning move is not to play."
This recent social media comment from Burry adds a layer of complexity to his latest move. Just a week before the massive short positions were revealed, he seemed to advocate for staying on the sidelines of what he implied was a market bubble. His decision to now enter the fray with such a significant bet suggests a shift in perspective, or perhaps that he has identified an opportunity too compelling to ignore.
Beyond the AI Shorts
While the bets against Nvidia and Palantir dominate the portfolio, Scion's filings reveal other strategic positions. The firm also holds a significant bullish position on the pharmaceutical company Pfizer, with call options valued at $153 million. This indicates that Burry's market view is nuanced, and he is not universally bearish.
The combination of a large bet on a legacy pharmaceutical company and a massive short against the hottest tech trend highlights a classic value investing approach. It suggests a belief that the market is overvaluing speculative growth (AI) while undervaluing established, cash-producing companies (pharmaceuticals).
As the market continues to process the implications of the AI revolution, Michael Burry's substantial short position will serve as a prominent counter-narrative. Whether it proves to be another prescient call or a misjudgment of a transformative technology trend remains to be seen.