Michael Burry, founder of Scion Asset Management and famed for his prescient bets against the US housing market during the 2008 financial crisis, has made a startling move against two of the biggest winners of the AI surge: Nvidia and Palantir Technologies. His contrarian trades come despite these companies' stellar performance this year, raising questions about whether a bubble is forming in the AI sector.
Burry's Historic Bold Strokes and Recent Moves
Burry's famed 2008 trade, which earned him approximately $700 million (£533.4 million), was immortalised in the award-winning film The Big Short. Since then, his investment approach has been characterised by bold, often contrarian bets—such as purchasing water assets in anticipation of future scarcity, and investing in GameStop ahead of its meme-stock explosion.
Now, his current positioning involves significant bearish bets against Nvidia and Palantir, both of which have soared this year. Nvidia's stock has surged 54% year-to-date, recently reaching a record market capitalisation of $5 trillion (£3.8 trillion). Palantir's stock has climbed an impressive 173%, driven by expanding AI-related business deals.
The Trades: Betting Against the Market's AI Giants
Despite their strong performance, Scion Asset Management has placed substantial put options against these companies. According to a 13F filing with the US Securities and Exchange Commission (SEC) on 3 November, Burry has committed:
- $186.5 million (£142.1 million) in put options against Nvidia
- $912.1 million (£695.1 million) in put options against Palantir
These bets suggest Burry's scepticism about the sustainability of their current valuations, despite the ongoing AI boom.
Other Notable Trades: Pfizer and Halliburton
In addition to his bets against AI giants, Burry made bullish moves on other sectors. During Q3, he placed:
- A $152.8 million (£116.4 million) call option on Pfizer (NYSE:PFE)
- A $61.5 million (£46.8 million) call option on Halliburton (NYSE:HAL)
Both stocks have underperformed during this year's record-breaking market rally.
Burry also exited several other positions profitably, including:
- Alibaba Group (NYSE:BABA) at a 36.5% profit
- Estée Lauder (NYSE:EL) at 27%
- ASML Holdings (Nasdaq:ASML) at 45.7%
- Regeneron Pharmaceuticals (Nasdaq:REGN) at 10.8%
A Paradoxical Approach Amidst AI Investment Frenzy
Burry's decision to short Nvidia and Palantir might seem counterintuitive, given their aggressive investments in AI and their expanding market share. However, it reflects his cautious stance amid mounting concerns of a potential bubble.
In a recent post on X, after a two-year silence, Burry remarked: 'Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.' He referenced the 1983 film WarGames, where an AI running nuclear simulations concludes that 'the only winning move is not to play,' highlighting the risks of overconfidence in AI markets.
Is an AI Bubble Forming? Experts Weigh In
The rapid rise in valuations of large-cap tech stocks and AI investments—without commensurate revenue streams—has sparked fears of a bubble. Many analysts warn that current valuations may not be sustainable.
Ray Dalio, founder of Bridgewater Associates, recently echoed these concerns. Speaking to CNBC, Dalio suggested that a bubble could be forming around US megacap tech firms but might not burst until the Federal Reserve tightens monetary policy.
'There's a lot of bubble stuff going on,' Dalio said. 'But bubbles don't pop, really, until they are popped by tightness of monetary policy and so on.'
Dalio also shared his 'bubble indicator', which is currently high, noting that outside of AI-related stocks, the broader market has performed relatively poorly, with approximately 80% of gains concentrated within big tech.
The Risks and Uncertainties Ahead
While it remains uncertain whether Burry's bearish stance will materialise into a broader market correction, his bets underscore the increasing anxiety among some seasoned investors about the sustainability of AI-driven valuations. As AI companies continue to invest heavily, the question remains: is this a genuine technological revolution, or are we on the brink of a bubble burst?
Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.
